Tag: retirement investing
The $65,000 Roth IRA Mistake To Avoid
Jason 0 Comments Retire Wealthy Retirement Planning
– I've seen too many of
you making some mistakes when it comes to investing
in your Roth IRA. One of them could cost you
$65,000 and the other one could cost you almost $500,000. You guys are seriously going
to make my beard turn more gray than it already is if
you don't knock it off. So let me show you what to watch out for, that way, you don't lose more money than you have to and
I can save a few bucks on hair dye for a couple more years. A Roth IRA is a self-directed
retirement account where you can contribute after
tax dollars to be invested. Since the money going in is taxed, the growth of your investments are not taxed and the money withdrawal from the account are never taxed either, as long as you don't try to pull out some of the money before the age of 59.5. There is no such thing
as a joint Roth IRA. So if you and your spouse
want to contribute to one, then you'll have to do it individually, hence the name Individual
Retirement Account.
If you both have enough
earned income separately, then you can each invest up to the $6500 limit for the year. If one of you works and the other doesn't, but you file a joint tax return, then the person working can, of course, contribute to a Roth IRA and
your spouse can contribute to a Spousal Roth IRA as well. Remember, these accounts are
owned by the individual person and on paper, not co-owned by both people. I want to try to encourage you to max out your Roth IRA every single year, if possible, because if you
don't do it for that year, then in the future you
cannot go back and contribute for a previous year once that time limit has passed. A Roth IRA is one of those accounts where I would bend over backwards to make sure that I can
put in the full amount allowed every single year.
In my order of operations for
what to do with your money, I have maxing out a Roth
IRA right after investing up to your employer match and HSA. That is how important
this type of account is. The good news with this
is that you actually have a timeframe of 16
months to contribute for each calendar year. So if we are in 2023
right now, then you have from January 1st, 2023, up until
when taxes need to be filed for that year to contribute,
which in this case, would be April 15th, 2024. That's how it is every single year, so ignore the actual dates in my example and pay more attention to the timeframes since the date taxes are due
will change by a few days from year to year. Most brokerages will ask
you which year you want to contribute to. For example, I personally
invest using M1 Finance, which you can check out down
in the description below, and also get a deposit bonus as well.
If I contributed to my Roth
IRA through them right now, then they would ask if I wanted the money to go towards 2022 or 2023, since at the time of recording this, we haven't hit the date
where taxes are due. This is great because it
gives you some extra time beyond the current year to
contribute Roth IRA money for that year. Before I tell you the next mistake that I see way too many people making, please help support my dog Molly by hitting that thumbs up
button and sharing this video with anyone you think it would help. Once you deposit money into your Roth IRA, there's one more extremely important step you need to do that I see a ton of people missing, and that is
actually investing the money.
I can't tell you how
many people I've talked to over the years who just put money into the account assuming
it would automatically grow, or knowing that they
needed to invest the money, but just forgetting to do
it because life happens, and things naturally slip out of our mind, only to check their account
balance years later, realizing that it hasn't grown in value because they didn't invest the money. Stop the nonsense here and
just set up auto investing within your investment account, and if you're waiting because you think that you can time the market
to buy in at a lower price, you can't, because it's
nearly impossible to do, so just to get the money
invested right now. If you know how you want to
invest the money, then great. If you don't, then I personally
like the two fund portfolio for people who are in
the accumulation phase of investing and in the
three fund portfolio for when you're closer to
retirement or in retirement.
I'll have a link to a
playlist then I made just for you where I teach you
about both of those portfolios down in the description below
and above my head as well. When you contribute to a Roth IRA, all of your money is not
locked up until 59.5. You can withdraw the
contributions that you've made before that age without paying a penalty, but you cannot withdraw any of
the gains within the account. For example, if you've contributed $6500 and the account has grown to $10,000, then you can withdraw
the $6500 contribution, but you cannot touch the $3500 gain without paying a penalty until 59.5. I've gotta interject for a second to give my personal opinion on this.
While withdrawing money
penalty-free is an option, I want to encourage you not to do this. To be brutally honest, I think that doing this
is one of the dumbest, most irresponsible, short-sighted
things that you can do. Withdrawing just $6500
worth of contributions would cost you $65,000 in
future investment growth. So when any money is
taken out of this account before retirement, think
about how it's actually going to cost you 7,800 Chipotle burritos, or 65 new Apple iPhones, or anything else that you would buy for that amount of money. And yes, I am fully aware
that you can do a penalty-free early withdrawal up to
$10,000 before the age of 59.5 for a first time home purchase. But this is just as stupid as withdrawing your contributions early
because that $10,000 is costing you over $100,000
in future investment growth when you pull that money out. Average annual home appreciation over the past 12 years has been 6.11%, and the US stock market
has returned 12.27%. Leave your money in the freaking Roth IRA and go earn that $10,000 that
you need to buy the home. Responsible investing takes time, like five or 10-plus years, and this money needs time to grow. The second you withdraw
any of your contributions, you are cutting down that tree before it even has a chance to grow fruit.
Once you withdraw
contributions from the past, you cannot replace that
money in the future. I get that emergencies happen in life, so that's why you need
to have money set aside in an emergency fund to
pay for those things. Do not, under 99.999% of circumstances, use your Roth IRA money for anything other than when you retire. One thing I see way too many people doing is investing in a
taxable brokerage account before they have their Roth
IRA maxed out for the year. This is a huge mistake from a tax savings
perspective for some of you because of how each account is taxed. With a Roth IRA, you invest with money
that's already been taxed, so the money can grow tax-free
and be withdrawn tax-free. With a taxable brokerage
account, you are paying taxes for the ongoing dividend
distributions every single year. Then you have to pay capital gains tax when you go to withdraw the money. Since the money within
a Roth IRA will grow and can be withdrawn tax-free, realistically, you want
this account to get as large as possible, but not at the expense of
your personal risk tolerance.
You should not take on
additional levels of risk by investing in more
risky, unprofitable stocks that random YouTubers have been pumping over the past few years or actively manage funds to
try to achieve higher returns. 99% of people, including
myself, cannot handle investing in something with a
high risk and potential, potential, high return. So don't even bother. The money in this account
is for retirement, so is it really worth it to risk that 60-year-old's financial wellbeing because you decided to gamble with their money right now? I doubt it.
Some of you might be over
the income limit to be able to contribute to a Roth IRA, or some of you will be at
that point in the future as your income grows. You can still contribute to a Roth IRA to take advantage of the tax-free growth by doing a backdoor Roth. To simply explain the process,
all you do is contribute to a traditional IRA. Do not invest the money yet. Then contact your brokerage
to have them convert the money to a Roth IRA. Now, I have done it with M1 Finance before and it was extremely easy. It only took I think two or three days for the money to get into my Roth IRA. Only do this if it makes sense based on your current tax rates
and future financial plans.
There's two things that you can do. if you are someone who thinks that you might be over the income limit, but you are not going to 100%
know until the year is over. Number one, you can
either wait until January of the following year,
like we talked about in one of the previous mistakes that
I mentioned, or number two, you can just contribute the
money to a traditional IRA, then do a backdoor Roth within
the year to get the money into the account so it can be invested. That way, if you are
over the income limit, you've already done the backdoor Roth. If you're under the income limit, no big deal 'cause you had to pay taxes on that money that was going
into the Roth IRA anyways. A question I get a lot is
whether or not you can contribute to a Roth IRA on different brokerages.
The simple answer is yes. This is how it would play out. You can contribute up to the max for one year
on, say, M1 Finance. Then you can decide to contribute up to the max on fidelity the next year. Then you can contribute up to the max on Vanguard the following year. So by the end of that third year, you would have three different Roth IRAs with three different brokerages, and there is no problem with that. You can take it one step further. If you decide, hey, out of these three, I actually like M1 finance
better than the other two, you can convert the
Roth IRAs with Fidelity and Vanguard into your
M1 Finance Roth IRA. You can also split up your contribution for the same year among
different brokerages. So if for this year you want
to say contribute $4,000 to an M1 Finance Roth IRA and the remaining $2,500
into a Fidelity Roth IRA, then you can do that without any problems.
The only thing you
cannot do is try to game the system by saying contributing $6500 into an M1 Finance Roth IRA and $6500 into a Roth IRA with another brokerage. You cannot exceed the maximum
amount allowed per year across all of your Roth IRAs on all of your brokerage accounts. Technically, you could do that since all of the brokerages aren't talking
to each other to keep track of what you are contributing, so you have to self-manage this. I would highly, highly recommend making sure
that you do not do this, whether it's on purpose or on accident. I don't know what the penalty is for this, but all I know is that you do
not want to get caught trying to defraud the government
in any way, shape, or form. Long-term investing is the name
of the game with a Roth IRA. This money is for when
you are in retirement, so make sure to take that into account when investing this money. No gambling it on stocks
that random YouTubers are promoting. I think the two or three fund portfolio is perfect for your Roth IRA, which you can learn more about
in these videos to your left.
There's a bunch of free stocks and resources down in
the description below to help with all of your personal finance and investing needs. I'll see you in the next one, friends, go..
Your Tell-All Guide to Saving for Retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
I'm Britt, the co-founder of Dow Janes, and
every single week I have someone asked me how they can start saving for retirement
or how much they need or if it's too late to start saving. Today, I'm going to share my
top tips for starting to save for retirement. And don't worry; it's easier than you think.
If you want more ideas for saving, investing, and making the most of your money,
don't forget to hit the subscribe button and the bell so you don't miss any new
videos. And if you liked this video, definitely give it a thumbs up.
All right. So, there are some misconceptions about retirement saving that I want to address.
First, one thing people often ask us is how much do I need for retirement? What's the magic number?
And the truth is it varies widely.
It depends on where you want to live or what lifestyle you
want to have or when you want to retire. Are you trying to retire at 40 or at 70?0.
If you take anything away from today, I want you to just start saving 20% of your pre-tax
income for your retirement, and you'll be fine. To learn more though, keep listening.
Okay. So how do you start saving for retirement? What you do is you follow the roadmap
steps. You make sure you're doing things in the right order. So we have a whole nother video
on the roadmap steps, but just to recap, the first thing you want to do is make sure
you're spending less than you make each month.
The second thing is to pay off any
high-interest rate debt you have, which is anything with an interest rate over 7%, then
you want to build up an emergency fund.
And then once you have those three things in place,
you're ready to start saving for retirement. So, to do that, you're going to find your monthly
savings number. You can use a simple retirement calculator to figure out how much you want to have
in retirement. I'll link to one in the description below. What you'll do is you'll add in your
current savings, anything you've already saved for retirement already, anything you expect to get
from social security, and then you'll adjust the savings amount to see exactly how much you need
to save each month to be on track, to meet your retirement goals. It's a super easy calculator,
you just enter the numbers. It'll spit out exactly what you need to do, and that number, that savings
amount, that's going to be your monthly goal.
So, if you don't already have an account,
you'll open up a retirement account, and that's where you'll begin to transfer that
savings amount to that account each month.
Where should you save your money? There are
different types of retirement accounts.
So, if your employer offers matching, then you'll
want to open a 401(k) or 403(b). In addition, you can open a Roth IRA or a traditional IRA.
IRA stands for Individual Retirement Account. If you're self-employed, you can also open a SEP
IRA. So for the Roth traditional or SEP IRAs, you can open those at any brokerage places
like Vanguard, Charles Schwab, Fidelity, or with a robo-advisor like Wealthfront or
Betterment. Any of those places offer retirement accounts. So, it's super easy to get started.
Then if your employer offers 401(k) matching, you definitely want to advantage of that.
So, what is 401(k) matching? It's when you save money for your retirement and your company
contributes the same amount that you save. They'll often match up to a certain amount
or a certain percentage of your salary.
So, if your company matches 4% of your
salary and you make $5,000 per month, you could contribute $200 per month towards your
retirement, and your company would contribute an additional $200 per month.
So you basically get
$200 in retirement money for free each month.
It's a way for companies to incentivize
their employees to save for retirement. So, if your employer offers this, definitely take
advantage of it. It's the easiest free money out there. And make sure you're contributing the
maximum amount that they're willing to match.
Okay. The next thing you'll do, if your employer
doesn't offer matching, or if you're, um, if you've already maxed that out, the next thing
you want to do is max out your contribution to your Roth or your traditional IRA. So, each year,
the IRS limits the amount that you're allowed to contribute. In 2021, the amount is $6,000.
If you're over 50, you have an extra bonus. You can contribute $7,000. So, try to contribute the
maximum amount to those accounts each year. So, max out your 401(k) to where your company matches
max out your Roth or your traditional IRA. If you're self-employed, you could also contribute to
your SEP IRA. If you're a great saver and you're saving more than those amounts, you can open
your own brokerage account.
So, a non-retirement account, and save the money there. You can use
that money for whatever you want, but you can know that you're saving that for retirement.
Once you've saved the money in those accounts, what you're going to do is invest that savings. So
for the easiest and simplest way to get invested, you'll invest in target date funds. These
are pre-made portfolios that allocate your money to a mix of stocks and bonds that
are appropriate based on your age.
If you want to invest in index funds yourself,
or if you're picking a fund that your employer offers, then you can use these rules of thumb.
Generally, you want your portfolio to be invested in the percentage of stocks that is equal to
120 minus your age.
So if you're 20 or younger, you want to have 100% of your portfolio
in stocks. If you're 30, you want 90% in stocks, for example. And just a quick
note that if you invest in target date funds, that will do that for you. The allocation
changes the allocation of stocks and bonds changes over time as you get older.
One quick thing to know is that you actually don't need to take your money, your
retirement money, out the year that you retire. You can leave it invested while you're in
retirement and just take out what you need, which means you actually have more time
than you think for your money to grow.
So, hopefully that gives you some peace of mind.
If you're getting started later in the game, if you're wondering how much you should be
saving in retirement savings each month, we have a couple of rules of thumb for you.
And
the bottom line is the sooner you start saving for retirement, the less you actually have to save,
because if you start sooner and you invest that money, it will grow and it will grow over a longer
period of time. If you're starting later in life, you have to save more because it has less
time to grow. So, if you're in your twenties, you can save 15% of your pre-tax income each
month and you'll be set. If you're starting in your thirties, you want to save 20% of your
pre-tax income. If you don't have anything saved and you're just starting to save for retirement in
your forties or your fifties, you'll need to save even more since you're starting later and your
money has less time to grow. If this is you, watch out for our next video on how to start saving
for retirement if you're in your fifties.
All right, the sooner you start saving for
retirement, the easier it is.
So, here's a recap of the steps: One, follow our wealth building
roadmap, so you know what to do in what order. Two, find your monthly savings. Number three, open
a retirement account. Four, take advantage of free money. Five, max out your contributions. Six,
invest your retirement savings, and seven, contribute to your retirement savings each
month. If you want to learn more about how to build your wealth and invest your retirement
savings, then definitely check out our webinar, Think Like an Investor. The link's in the comment
below.
All right. Thanks for watching..
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3 MASSIVE Ways To Help Your Money Last Longer In Retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Retirement is supposed to be stress-free!
you're enjoying life you step away from all of the nonsense of the workplace and all of the
frustration and you're enjoying your life you're sitting on the beach just chilling having a good
time it's all good but there's one stressor that I see with so many people that are retired
and that's making your money last the markets aren't easy to watch you're going to open up
your accounts and one day you're up you know $100,000 if you've got a million dollar you know
10% gain is $100,000 but then if you have a 10% loss that year you're down $100,000 that's hard
to stomach when you've built you worked so hard for all of this money for so long well we've got
to figure out how to make your money last even in a bad market so let's take a look here let's
look at retired Roger I built this out with Nest eg a software we use for clients here at Jazz
Wealth and if we're looking Roger looks great right this second he's got a 92% probability of
success of having about $11 million at the end of his life he's 61 years old he plans to live on
5,100 a year he's got $800,000 little bits 25% of that is in WTH the rest of it's in pre-tax just
to give you a breakdown of where he's at so if we're looking here he's planning to take Social
Security at 70 he's actually not and I'll show you a minute Ro Roger's one of those he's like
ah my dad died early I I think I'm healthier but I'm not giving that money to the government that
that was my Roger voice if you didn't catch that so if we're looking here and we say Okay Roger's
going to take Social Security early all right well perfect well let's go ahead and do that so we're
going to make this adjustment here and we're going to say he's going to take it early it gives him
about a you know 5% probability less here though you're not talking them big difference in money I
mean $32,000 roughly $33,000 is the difference so it's not a significant ific difference but what
happens if the market has a massive pullback if we see a massive pullback that's what we've got
to look at here with Roger and figure out what is best for his scenario now if we go right here
and we say the markets the equity markets Dro 30% he's going to go down to 64% well personally
as a planner I'm looking at 64% of probability of success you know when you're in your 70s 70%
80% you know it's not too bad because we're also looking at this number we're also looking
at something else called the cash flow the cash flow is going to show us a whole different
scenario when it comes to this where it's really looking at things and it's saying okay we've got
this as far as go it goes in a linear fashion so he's going to get you know let's say a 7% return
on his money every single year the money's coming in the money's going out that's what we're
looking at there but in this the Monte Carlo looks at a thousand scenarios and it gives us
this probability of success it's a little more conservative but 64% I'm not Ultra comfortable
telling Roger hey you know take Social Security at 62 years old the markets just fell 30% now
you would think that that's actually backwards because a lot of times advisers will tell you
hey take Social Security early if the market Falls that's the option this is where planning
comes into play because that's not always the best scenario and in Rogers if we look here and we
say well you know what Roger going to take Social Security at 70 instead there's a 30% pullback
he's now pushing 70% again we still have about a 5% spread on the probability of success in his
retirement but when you're in the 60s wouldn't you rather have a 69% than a 64% I'd much rather give
him that information and make him do that instead so now let's go back because there's other stuff
that Roger wants to do Roger wants to talk about hey you know what I want to be really aggressive
with my money and rightfully so if I'm looking at this plan here and I look here at Roger let's
get this back going he's sitting here and he says I want want this to be 100% in equities and here
is why I'm going to potentially have $2 million at the end of my life that I can leave my kids
versus 1.1 million and look here it's only a 1% probability difference now you're probably saying
well why is there a 1% Less in having $2 million the reason for that is if you're investing in
the stocks this probability of success and the way this looks at it the Monte Carlo is saying
there's 29 years of Rogers life still to cover that's you know until age 90 looking at that
specific scenario in his life there's 29 years of Market return projections this gets a little
bit risky if everything's 100% in the stock market versus if you have a little bit of bonds or maybe
some currently money market fund sitting in there you're not just overly saturated just in the most
aggressive portfolio that you can be and so in his scenario though he wants to leave this money
and he's looking at that well let's go ahead and take a look now and let's see what this could
look like now remember if he were to take Social Security at 70 and the current allocation which
is about a 6040 mix for his scenario here he would have a 69.6 probability of success well remember
he's got you know a lot of opportunity here he's wanting to leave his kids $900,000 more if he gets
aggressive but what happens if he gets aggressive and then the market pulls back you're talking
60% probability 9% difference 60% probability of success I'm not comfortable again telling Roger
hey man this is where you need to be so you've got to think through not just what today is coming
up with when it comes to your financial plan and your retirement you've got to really think through
the stress factors the stress test of what happens when the market Falls because ultimately the
markets will go down that's just an unfortunate scenario that's going to happen if you look dayto
day the markets go up the markets go down and historically they've always appreciated or went
up but in the short term there will be downfalls there and so one other thing we got to look look
at though is if you were wanting to make a big purchase because remember we're wanting to make
your retirement dollars last so what happens if you're wanting to make a large purchase in a down
Market well remember Roger had $800,000 well let's just say that you know a 30% pullback would give
him a lot a lot less money let's just say that we have a little bit of a pullback and Rogers
money is now $750,000 and he makes a purchase he had $800,000 he made a $50,000 purchase well
the next year when the market recovers Roger's going to have 82,500 on a 7% return so you know
eventually the markets fall they will start to recover it's all about delaying the purchase and
let me show you exactly why if you were to wait for the recovery to happen and Roger says I've
got $800,000 once the market recovers I'm back to my break even here I get a 7% return I make a
$5,000 purchase well he had $856,000 he's almost got enough money to cover the taxes potentially
depending on what tax bracket he's in and the actual purchase that $50,000 purchase so it's
really thinking through and trying to time when you're in a down Market trying to time when the
right time is to make this large purchase some people just get antsy and they say you know what
the Market's falling I want to get out of it I'm going to go ahead and buy the car now or buy
the the house or the RV in retirement because I don't even know if my money's going to be there
well that's not the best decision because you're making an emotional decision so instead you want
to make sure that you're removing the motion out you're looking look at a financial plan you're
not just looking at one scenario but you're really starting to think through this to determine what
is going to be best for you thanks for watching if you want to learn more about jazzwealth
and how we can help as fiduciary advisers go to Jazzwealth.com if you want more educational
content be sure to check out our videos here
Is a Retirement Bucket Strategy Right for You?
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Making your money last in retirement can be tricky, so it's worth asking if a bucketing strategy might help you address some of the biggest challenges you face. So in particular, we're talking about number one having the confidence to stop working and start spending. That can be terrifying even for those of you who are well prepared. You might have assets and a healthy income from social security and pensions, but still it's kind of terrifying to walk away from a job with a steady income and some nice health care. You might also need to invest at least some portion of your assets for long term growth, and that's because we all face the risk of inflation or rising prices over time.
So if your assets aren't growing then you may lose purchasing power over decades in retirement, and that can be a problem. Then a third issue is of course that sequence of returns risk, and this is when you are selling assets especially at the beginning of your retirement when markets are down, if there happens to be a crash at the beginning of your retirement years, if you're selling assets during that event it can really take a bigger bite out of your portfolio and increase the risk of you running out of money later in life, and we don't want that. So let's spend the next couple of minutes talking about retirement bucket strategies. We'll go over some examples, maybe look at how to start it and manage it over time, and then discuss if it's the right move for you. I will mention that I don't see a lot of clients using this beyond a two bucket approach, but it's still nice to know these concepts so that you can either rule it out if you're not going to use it or get some good ideas. Bucketing is also known as time segmentation.
In other words, you have different buckets of assets that you can pull from over different time frames, and the promise of this is that hopefully you would be able to avoid selling assets when they're down and you can be confident that you have the funds you need for your withdrawals and your spending. So you always have a cash bucket and this involves money that you might be spending next week or next month.
This is relatively safe money, and then beyond that you might have one or more additional buckets that are invested a bit differently, and we'll talk about that in just a minute. It's important for you to know that you can customize this in any way you want. We're just going to go over some examples that are concepts, but whether you use two buckets or three buckets or make the time frames different, maybe you want four years worth of cash for example, these are all things that you can customize to suit your preferences. One of the simplest approaches is a two bucket strategy.
So you've got just that one bucket for several years worth of spending. You might set aside enough cash to satisfy let's say one to three years worth of withdrawals if you needed to take money out of investments and you didn't want to sell investments because they're down perhaps. The second bucket is maybe a total return portfolio. It might be invested according to whatever is right for your risk preferences, your needs, and your tolerance, and you would know that given that you have some cash set aside you don't need to dip into that bucket for at least four years or so. Now keep in mind that this isn't rigid so you don't need to necessarily start by spending from your cash bucket.
If the markets are doing well and your investments are gaining value it might make sense just to spend from those investments and leave that cash bucket as is and it's there for if you ever need it. So if there is ever a market crash it is already loaded with cash that you can draw on and you can worry a lot less about what the markets are doing. So you can see some of the investments in bucket number one. These are cash equivalents basically it might even be in a savings account or CDs. You could look at T bills if you wanted and other types of things. Again this is up to you but the point is you might feel really confident if you have this money set aside. And by the way it's probably a good idea to start building up this cash bucket a few years before retirement so that once you reach day one of retirement you have this money set aside already. In the second bucket of course you have a diversified portfolio so that might be mutual funds and ETFs, maybe some individual stocks and bonds, whatever it is that you invest in according to whatever is appropriate for you as an investor.
So if that's a 60 40 for example you do that maybe you have more risk or less risk or alternatives or something else. We'll look at some deeper examples next but first I want to mention I'm Justin Pritchard and I help people plan for retirement and invest for the future, and in the description below you're going to find more information on bucketing, some resources from Christine Benz, as well as just some general retirement planning resources and information. I think you will find all of that really helpful so please check that out. And by the way it's just a friendly reminder that this is just a short video it can't possibly cover everything. You can still run out of money even if you use a bucketing strategy so triple check all of this with some professionals and be aware that there is always some risk and uncertainty in the retirement planning world. Now moving on to a three bucket example we have those same two buckets as before but we've added an income bucket so this is in between the cash withdrawal bucket and the longer term growth bucket.
You might prefer to set aside an extra bucket. I'm not sure that you necessarily need this bucket but you could include things that kick off higher levels of income perhaps longer term bonds and CDs maybe some dividend stocks if you have the appetite for that kind of risk and anything else that comes to mind that might help create some income that can go into bucket number one. If we look at this three bucket example depending on how you set it up you might have roughly or almost 10 years worth of withdrawals in relatively safe assets.
You've got a couple of years in cash so that's going to be really safe and then the income is a little bit more risk but not quite everything in the stock market like your growth bucket you could potentially pull from those assets for up to 10 years before you need to go and sell from your growth bucket and of course the past doesn't necessarily repeat, there are no guarantees but if we look historically there's a decent chance that you wouldn't be selling at least at steep losses and you might not be selling at any losses if you have a diversified portfolio over a rolling 10 year period, again can't predict the future, then if you really wanted to you could add more buckets but that really gets complicated, and speaking of complicated, let's get into bucket maintenance or bucket management.
This is really where you start to see some cracks in getting too complicated with this strategy or using too many buckets it's easy enough to design a bucket strategy in theory so you can set up the amounts you want and figure out how many years they should last and on your retirement date and in the early months you will have a lovely set of buckets, you've got the exact amount in each one and the investment mix in each one is exactly what you want, but at some point, life might happen, if you get into an extended downturn or even a flat market or if you have huge expenses that you didn't expect at some point we need to figure out how exactly you're going to be moving assets from one bucket to the next again when things are going well you're typically going to maybe just sell from those investment assets and not even use bucket number one the safe money you might just take profits off the top of whatever your growth investments are doing during the good times and meanwhile you might be sending income let's say dividends or capital gains payments over from the income and growth buckets into bucket number one and that can help to build that up or replenish it from any withdrawals that you might have taken but if you really start drawing from bucket one that safe bucket how exactly do we decide when and how to put money back in well one way is to use a systematic approach and that might be one example is going to be just every time period whether it's every six months every year you take some money out of the subsequent buckets and pull it forward into your cash bucket that can kind of defeat the purpose of bucketing because the idea is that you don't want to do things systematically you want to be more opportunistic and not just sell every six months but you want to avoid selling when investments are down to make a slight improvement on that you could look at a rebalancing strategy so you just take profits off the top of whatever did well and sell those assets and put the proceeds into bucket number one so if stocks did really well you're taking money out of stocks putting it into cash if bonds did really well and stocks suffered you would sell some bonds to get back into balance and then move that money over into the cash bucket you could also look at more opportunistic approaches and these border on market timing but you might say that maybe you have some rules you could say if something rises by more than five percent during a quarter or during a month for example you're going to sell some of that get it back down to a smaller proportion and take the sales proceeds put that into cash your bucket maintenance gets really complicated at some point especially if the markets don't behave so I would say you want to do a lot more thinking ahead and a lot more research if this is something you're considering look at some of the discussions with Christine Benz from Morningstar there are a number of those here on YouTube and she talks about that in more detail and proposes maybe some simplified ways of going about this which might take us right back to the two bucket approach really quickly how do you set this up in the first place well one way to do it is to use different accounts so your cash bucket is in cash and that might be in savings accounts CDs banks credit unions or even a conservative brokerage account then you might have your other buckets in different accounts and that way you can keep a balance of whatever the assets are in that account you can rebalance that account and the cash bucket is unaffected so it might make sense to do that but if you prefer you could do all of this in one account so for example you could have a couple of years worth of withdrawals sitting in cash or in a money market fund in a brokerage account then the subsequent money or the rest of the buckets would be in other investments inside of that same account ultimately this comes down to your preferences and what's going to be easiest for you to keep track of because that's really important you have to manage this over time it isn't just setting it up once and then letting it run you really do need to keep paying attention to it so I've hinted at some of the potential challenges here and I'm going to propose what I think is a simpler way of doing that and explain exactly why I think that but again it can be hard to manage this over time you don't always know what the next step is and so you might be kind of figuring things out and winging it as you go and that kind of defeats the purpose of setting up a structured process at the beginning if you aren't really sure what you're going to do with it as the years pass this can also be a cash heavy approach so you might have several years worth of withdrawals sitting in cash and that's not necessarily a bad idea but for some people given how everything is set up that can potentially mean that they don't have much that is invested for longer term growth so you want to think about that as you explore all of this and of course there are no guarantees so there could be extended draw downs that cause you to wipe out one bucket then the next and then get right into those growth assets selling exactly when you don't want to sell you can still have problems with this approach so what are some decent alternatives to bucketing you're obviously looking for a solution that can provide some peace of mind and give you a reasonable path forward as you figure out how to spend down the assets that you have one solution might be total return investing and that's where you just have a diversified portfolio that is tailored to your needs it has the right risk level and then a cash reserve so basically we're just talking about two buckets here if you want to look at it that way you've got a couple of years let's say worth of money in cash that can satisfy withdrawals during market downturns and the rest of it is invested I think you'll find that this functions similarly to what everybody thinks about as a bucket strategy so what you're doing with that approach is you want to keep the portfolio in balance so a couple of options number one is you can just sell what's been doing well and generate cash that's kind of like what we were talking about with bucketing or you might keep the portfolio in balance every six months for example or when it gets out of different tolerance ranges you might get it back into balance but effectively you're still selling your winners there and then putting it into the portfolio balance and then whenever you want to add cash you would just sell everything proportionally but you have been previously selling your winners to keep the portfolio in balance it's not exactly the same as a three bucket strategy for example but it can function somewhat similarly and another approach is to look at guardrails this is different than bucketing and looking at what to sell and when but it might be a different way to figure out exactly how much you can spend and avoid running out of money during retirement that's a topic for another video but it's something to look into if you're exploring these ideas so I hope you found this helpful if you did please leave a quick thumbs up thank you and take care.
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The $65,000 Roth IRA Mistake To Avoid
Jason 0 Comments Retire Wealthy Retirement Planning
– I've seen too many of
you making some mistakes when it comes to investing
in your Roth IRA. One of them could cost you
$65,000 and the other one could cost you almost $500,000. You guys are seriously going
to make my beard turn more gray than it already is if
you don't knock it off. So let me show you what to watch out for, that way, you don't lose more money than you have to and
I can save a few bucks on hair dye for a couple more years.
A Roth IRA is a self-directed
retirement account where you can contribute after
tax dollars to be invested. Since the money going in is taxed, the growth of your investments are not taxed and the money withdrawal from the account are never taxed either, as long as you don't try to pull out some of the money before the age of 59.5. There is no such thing
as a joint Roth IRA. So if you and your spouse
want to contribute to one, then you'll have to do it individually, hence the name Individual
Retirement Account. If you both have enough
earned income separately, then you can each invest up to the $6500 limit for the year. If one of you works and the other doesn't, but you file a joint tax return, then the person working can, of course, contribute to a Roth IRA and
your spouse can contribute to a Spousal Roth IRA as well. Remember, these accounts are
owned by the individual person and on paper, not co-owned by both people.
I want to try to encourage you to max out your Roth IRA every single year, if possible, because if you
don't do it for that year, then in the future you
cannot go back and contribute for a previous year once that time limit has passed. A Roth IRA is one of those accounts where I would bend over backwards to make sure that I can
put in the full amount allowed every single year. In my order of operations for
what to do with your money, I have maxing out a Roth
IRA right after investing up to your employer match and HSA. That is how important
this type of account is. The good news with this
is that you actually have a timeframe of 16
months to contribute for each calendar year. So if we are in 2023
right now, then you have from January 1st, 2023, up until
when taxes need to be filed for that year to contribute,
which in this case, would be April 15th, 2024.
That's how it is every single year, so ignore the actual dates in my example and pay more attention to the timeframes since the date taxes are due
will change by a few days from year to year. Most brokerages will ask
you which year you want to contribute to. For example, I personally
invest using M1 Finance, which you can check out down
in the description below, and also get a deposit bonus as well. If I contributed to my Roth
IRA through them right now, then they would ask if I wanted the money to go towards 2022 or 2023, since at the time of recording this, we haven't hit the date
where taxes are due. This is great because it
gives you some extra time beyond the current year to
contribute Roth IRA money for that year.
Before I tell you the next mistake that I see way too many people making, please help support my dog Molly by hitting that thumbs up
button and sharing this video with anyone you think it would help. Once you deposit money into your Roth IRA, there's one more extremely important step you need to do that I see a ton of people missing, and that is
actually investing the money. I can't tell you how
many people I've talked to over the years who just put money into the account assuming
it would automatically grow, or knowing that they
needed to invest the money, but just forgetting to do
it because life happens, and things naturally slip out of our mind, only to check their account
balance years later, realizing that it hasn't grown in value because they didn't invest the money.
Stop the nonsense here and
just set up auto investing within your investment account, and if you're waiting because you think that you can time the market
to buy in at a lower price, you can't, because it's
nearly impossible to do, so just to get the money
invested right now. If you know how you want to
invest the money, then great. If you don't, then I personally
like the two fund portfolio for people who are in
the accumulation phase of investing and in the
three fund portfolio for when you're closer to
retirement or in retirement.
I'll have a link to a
playlist then I made just for you where I teach you
about both of those portfolios down in the description below
and above my head as well. When you contribute to a Roth IRA, all of your money is not
locked up until 59.5. You can withdraw the
contributions that you've made before that age without paying a penalty, but you cannot withdraw any of
the gains within the account. For example, if you've contributed $6500 and the account has grown to $10,000, then you can withdraw
the $6500 contribution, but you cannot touch the $3500 gain without paying a penalty until 59.5. I've gotta interject for a second to give my personal opinion on this. While withdrawing money
penalty-free is an option, I want to encourage you not to do this. To be brutally honest, I think that doing this
is one of the dumbest, most irresponsible, short-sighted
things that you can do.
Withdrawing just $6500
worth of contributions would cost you $65,000 in
future investment growth. So when any money is
taken out of this account before retirement, think
about how it's actually going to cost you 7,800 Chipotle burritos, or 65 new Apple iPhones, or anything else that you would buy for that amount of money. And yes, I am fully aware
that you can do a penalty-free early withdrawal up to
$10,000 before the age of 59.5 for a first time home purchase. But this is just as stupid as withdrawing your contributions early
because that $10,000 is costing you over $100,000
in future investment growth when you pull that money out. Average annual home appreciation over the past 12 years has been 6.11%, and the US stock market
has returned 12.27%. Leave your money in the freaking Roth IRA and go earn that $10,000 that
you need to buy the home. Responsible investing takes time, like five or 10-plus years, and this money needs time to grow.
The second you withdraw
any of your contributions, you are cutting down that tree before it even has a chance to grow fruit. Once you withdraw
contributions from the past, you cannot replace that
money in the future. I get that emergencies happen in life, so that's why you need
to have money set aside in an emergency fund to
pay for those things. Do not, under 99.999% of circumstances, use your Roth IRA money for anything other than when you retire. One thing I see way too many people doing is investing in a
taxable brokerage account before they have their Roth
IRA maxed out for the year.
This is a huge mistake from a tax savings
perspective for some of you because of how each account is taxed. With a Roth IRA, you invest with money
that's already been taxed, so the money can grow tax-free
and be withdrawn tax-free. With a taxable brokerage
account, you are paying taxes for the ongoing dividend
distributions every single year. Then you have to pay capital gains tax when you go to withdraw the money.
Since the money within
a Roth IRA will grow and can be withdrawn tax-free, realistically, you want
this account to get as large as possible, but not at the expense of
your personal risk tolerance. You should not take on
additional levels of risk by investing in more
risky, unprofitable stocks that random YouTubers have been pumping over the past few years or actively manage funds to
try to achieve higher returns. 99% of people, including
myself, cannot handle investing in something with a
high risk and potential, potential, high return. So don't even bother. The money in this account
is for retirement, so is it really worth it to risk that 60-year-old's financial wellbeing because you decided to gamble with their money right now? I doubt it. Some of you might be over
the income limit to be able to contribute to a Roth IRA, or some of you will be at
that point in the future as your income grows. You can still contribute to a Roth IRA to take advantage of the tax-free growth by doing a backdoor Roth. To simply explain the process,
all you do is contribute to a traditional IRA.
Do not invest the money yet. Then contact your brokerage
to have them convert the money to a Roth IRA. Now, I have done it with M1 Finance before and it was extremely easy. It only took I think two or three days for the money to get into my Roth IRA. Only do this if it makes sense based on your current tax rates
and future financial plans. There's two things that you can do. if you are someone who thinks that you might be over the income limit, but you are not going to 100%
know until the year is over. Number one, you can
either wait until January of the following year,
like we talked about in one of the previous mistakes that
I mentioned, or number two, you can just contribute the
money to a traditional IRA, then do a backdoor Roth within
the year to get the money into the account so it can be invested.
That way, if you are
over the income limit, you've already done the backdoor Roth. If you're under the income limit, no big deal 'cause you had to pay taxes on that money that was going
into the Roth IRA anyways. A question I get a lot is
whether or not you can contribute to a Roth IRA on different brokerages. The simple answer is yes. This is how it would play out. You can contribute up to the max for one year
on, say, M1 Finance.
Then you can decide to contribute up to the max on fidelity the next year. Then you can contribute up to the max on Vanguard the following year. So by the end of that third year, you would have three different Roth IRAs with three different brokerages, and there is no problem with that. You can take it one step further. If you decide, hey, out of these three, I actually like M1 finance
better than the other two, you can convert the
Roth IRAs with Fidelity and Vanguard into your
M1 Finance Roth IRA.
You can also split up your contribution for the same year among
different brokerages. So if for this year you want
to say contribute $4,000 to an M1 Finance Roth IRA and the remaining $2,500
into a Fidelity Roth IRA, then you can do that without any problems. The only thing you
cannot do is try to game the system by saying contributing $6500 into an M1 Finance Roth IRA and $6500 into a Roth IRA with another brokerage. You cannot exceed the maximum
amount allowed per year across all of your Roth IRAs on all of your brokerage accounts. Technically, you could do that since all of the brokerages aren't talking
to each other to keep track of what you are contributing, so you have to self-manage this. I would highly, highly recommend making sure
that you do not do this, whether it's on purpose or on accident. I don't know what the penalty is for this, but all I know is that you do
not want to get caught trying to defraud the government
in any way, shape, or form.
Long-term investing is the name
of the game with a Roth IRA. This money is for when
you are in retirement, so make sure to take that into account when investing this money. No gambling it on stocks
that random YouTubers are promoting. I think the two or three fund portfolio is perfect for your Roth IRA, which you can learn more about
in these videos to your left. There's a bunch of free stocks and resources down in
the description below to help with all of your personal finance and investing needs. I'll see you in the next one, friends, go..
Is a Retirement Bucket Strategy Right for You?
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
Making your money last in retirement can be tricky, so it's worth asking if a bucketing strategy might help you address some of the biggest challenges you face. So in particular, we're talking about number one having the confidence to stop working and start spending. That can be terrifying even for those of you who are well prepared. You might have assets and a healthy income from social security and pensions, but still it's kind of terrifying to walk away from a job with a steady income and some nice health care.
You might also need to invest at least some portion of your assets for long term growth, and that's because we all face the risk of inflation or rising prices over time. So if your assets aren't growing then you may lose purchasing power over decades in retirement, and that can be a problem. Then a third issue is of course that sequence of returns risk, and this is when you are selling assets especially at the beginning of your retirement when markets are down, if there happens to be a crash at the beginning of your retirement years, if you're selling assets during that event it can really take a bigger bite out of your portfolio and increase the risk of you running out of money later in life, and we don't want that. So let's spend the next couple of minutes talking about retirement bucket strategies.
We'll go over some examples, maybe look at how to start it and manage it over time, and then discuss if it's the right move for you. I will mention that I don't see a lot of clients using this beyond a two bucket approach, but it's still nice to know these concepts so that you can either rule it out if you're not going to use it or get some good ideas. Bucketing is also known as time segmentation. In other words, you have different buckets of assets that you can pull from over different time frames, and the promise of this is that hopefully you would be able to avoid selling assets when they're down and you can be confident that you have the funds you need for your withdrawals and your spending.
So you always have a cash bucket and this involves money that you might be spending next week or next month. This is relatively safe money, and then beyond that you might have one or more additional buckets that are invested a bit differently, and we'll talk about that in just a minute. It's important for you to know that you can customize this in any way you want. We're just going to go over some examples that are concepts, but whether you use two buckets or three buckets or make the time frames different, maybe you want four years worth of cash for example, these are all things that you can customize to suit your preferences. One of the simplest approaches is a two bucket strategy.
So you've got just that one bucket for several years worth of spending. You might set aside enough cash to satisfy let's say one to three years worth of withdrawals if you needed to take money out of investments and you didn't want to sell investments because they're down perhaps. The second bucket is maybe a total return portfolio. It might be invested according to whatever is right for your risk preferences, your needs, and your tolerance, and you would know that given that you have some cash set aside you don't need to dip into that bucket for at least four years or so. Now keep in mind that this isn't rigid so you don't need to necessarily start by spending from your cash bucket. If the markets are doing well and your investments are gaining value it might make sense just to spend from those investments and leave that cash bucket as is and it's there for if you ever need it. So if there is ever a market crash it is already loaded with cash that you can draw on and you can worry a lot less about what the markets are doing.
So you can see some of the investments in bucket number one. These are cash equivalents basically it might even be in a savings account or CDs. You could look at T bills if you wanted and other types of things. Again this is up to you but the point is you might feel really confident if you have this money set aside. And by the way it's probably a good idea to start building up this cash bucket a few years before retirement so that once you reach day one of retirement you have this money set aside already.
In the second bucket of course you have a diversified portfolio so that might be mutual funds and ETFs, maybe some individual stocks and bonds, whatever it is that you invest in according to whatever is appropriate for you as an investor. So if that's a 60 40 for example you do that maybe you have more risk or less risk or alternatives or something else. We'll look at some deeper examples next but first I want to mention I'm Justin Pritchard and I help people plan for retirement and invest for the future, and in the description below you're going to find more information on bucketing, some resources from Christine Benz, as well as just some general retirement planning resources and information.
I think you will find all of that really helpful so please check that out. And by the way it's just a friendly reminder that this is just a short video it can't possibly cover everything. You can still run out of money even if you use a bucketing strategy so triple check all of this with some professionals and be aware that there is always some risk and uncertainty in the retirement planning world. Now moving on to a three bucket example we have those same two buckets as before but we've added an income bucket so this is in between the cash withdrawal bucket and the longer term growth bucket. You might prefer to set aside an extra bucket. I'm not sure that you necessarily need this bucket but you could include things that kick off higher levels of income perhaps longer term bonds and CDs maybe some dividend stocks if you have the appetite for that kind of risk and anything else that comes to mind that might help create some income that can go into bucket number one.
If we look at this three bucket example depending on how you set it up you might have roughly or almost 10 years worth of withdrawals in relatively safe assets. You've got a couple of years in cash so that's going to be really safe and then the income is a little bit more risk but not quite everything in the stock market like your growth bucket you could potentially pull from those assets for up to 10 years before you need to go and sell from your growth bucket and of course the past doesn't necessarily repeat, there are no guarantees but if we look historically there's a decent chance that you wouldn't be selling at least at steep losses and you might not be selling at any losses if you have a diversified portfolio over a rolling 10 year period, again can't predict the future, then if you really wanted to you could add more buckets but that really gets complicated, and speaking of complicated, let's get into bucket maintenance or bucket management.
This is really where you start to see some cracks in getting too complicated with this strategy or using too many buckets it's easy enough to design a bucket strategy in theory so you can set up the amounts you want and figure out how many years they should last and on your retirement date and in the early months you will have a lovely set of buckets, you've got the exact amount in each one and the investment mix in each one is exactly what you want, but at some point, life might happen, if you get into an extended downturn or even a flat market or if you have huge expenses that you didn't expect at some point we need to figure out how exactly you're going to be moving assets from one bucket to the next again when things are going well you're typically going to maybe just sell from those investment assets and not even use bucket number one the safe money you might just take profits off the top of whatever your growth investments are doing during the good times and meanwhile you might be sending income let's say dividends or capital gains payments over from the income and growth buckets into bucket number one and that can help to build that up or replenish it from any withdrawals that you might have taken but if you really start drawing from bucket one that safe bucket how exactly do we decide when and how to put money back in well one way is to use a systematic approach and that might be one example is going to be just every time period whether it's every six months every year you take some money out of the subsequent buckets and pull it forward into your cash bucket that can kind of defeat the purpose of bucketing because the idea is that you don't want to do things systematically you want to be more opportunistic and not just sell every six months but you want to avoid selling when investments are down to make a slight improvement on that you could look at a rebalancing strategy so you just take profits off the top of whatever did well and sell those assets and put the proceeds into bucket number one so if stocks did really well you're taking money out of stocks putting it into cash if bonds did really well and stocks suffered you would sell some bonds to get back into balance and then move that money over into the cash bucket you could also look at more opportunistic approaches and these border on market timing but you might say that maybe you have some rules you could say if something rises by more than five percent during a quarter or during a month for example you're going to sell some of that get it back down to a smaller proportion and take the sales proceeds put that into cash your bucket maintenance gets really complicated at some point especially if the markets don't behave so I would say you want to do a lot more thinking ahead and a lot more research if this is something you're considering look at some of the discussions with Christine Benz from Morningstar there are a number of those here on YouTube and she talks about that in more detail and proposes maybe some simplified ways of going about this which might take us right back to the two bucket approach really quickly how do you set this up in the first place well one way to do it is to use different accounts so your cash bucket is in cash and that might be in savings accounts CDs banks credit unions or even a conservative brokerage account then you might have your other buckets in different accounts and that way you can keep a balance of whatever the assets are in that account you can rebalance that account and the cash bucket is unaffected so it might make sense to do that but if you prefer you could do all of this in one account so for example you could have a couple of years worth of withdrawals sitting in cash or in a money market fund in a brokerage account then the subsequent money or the rest of the buckets would be in other investments inside of that same account ultimately this comes down to your preferences and what's going to be easiest for you to keep track of because that's really important you have to manage this over time it isn't just setting it up once and then letting it run you really do need to keep paying attention to it so I've hinted at some of the potential challenges here and I'm going to propose what I think is a simpler way of doing that and explain exactly why I think that but again it can be hard to manage this over time you don't always know what the next step is and so you might be kind of figuring things out and winging it as you go and that kind of defeats the purpose of setting up a structured process at the beginning if you aren't really sure what you're going to do with it as the years pass this can also be a cash heavy approach so you might have several years worth of withdrawals sitting in cash and that's not necessarily a bad idea but for some people given how everything is set up that can potentially mean that they don't have much that is invested for longer term growth so you want to think about that as you explore all of this and of course there are no guarantees so there could be extended draw downs that cause you to wipe out one bucket then the next and then get right into those growth assets selling exactly when you don't want to sell you can still have problems with this approach so what are some decent alternatives to bucketing you're obviously looking for a solution that can provide some peace of mind and give you a reasonable path forward as you figure out how to spend down the assets that you have one solution might be total return investing and that's where you just have a diversified portfolio that is tailored to your needs it has the right risk level and then a cash reserve so basically we're just talking about two buckets here if you want to look at it that way you've got a couple of years let's say worth of money in cash that can satisfy withdrawals during market downturns and the rest of it is invested I think you'll find that this functions similarly to what everybody thinks about as a bucket strategy so what you're doing with that approach is you want to keep the portfolio in balance so a couple of options number one is you can just sell what's been doing well and generate cash that's kind of like what we were talking about with bucketing or you might keep the portfolio in balance every six months for example or when it gets out of different tolerance ranges you might get it back into balance but effectively you're still selling your winners there and then putting it into the portfolio balance and then whenever you want to add cash you would just sell everything proportionally but you have been previously selling your winners to keep the portfolio in balance it's not exactly the same as a three bucket strategy for example but it can function somewhat similarly and another approach is to look at guardrails this is different than bucketing and looking at what to sell and when but it might be a different way to figure out exactly how much you can spend and avoid running out of money during retirement that's a topic for another video but it's something to look into if you're exploring these ideas so I hope you found this helpful if you did please leave a quick thumbs up thank you and take care.
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The $65,000 Roth IRA Mistake To Avoid
Jason 0 Comments Retire Wealthy Retirement Planning
– I've seen too many of
you making some mistakes when it comes to investing
in your Roth IRA. One of them could cost you
$65,000 and the other one could cost you almost $500,000. You guys are seriously going
to make my beard turn more gray than it already is if
you don't knock it off. So let me show you what to watch out for, that way, you don't lose more money than you have to and
I can save a few bucks on hair dye for a couple more years. A Roth IRA is a self-directed
retirement account where you can contribute after
tax dollars to be invested. Since the money going in is taxed, the growth of your investments are not taxed and the money withdrawal from the account are never taxed either, as long as you don't try to pull out some of the money before the age of 59.5.
There is no such thing
as a joint Roth IRA. So if you and your spouse
want to contribute to one, then you'll have to do it individually, hence the name Individual
Retirement Account. If you both have enough
earned income separately, then you can each invest up to the $6500 limit for the year. If one of you works and the other doesn't, but you file a joint tax return, then the person working can, of course, contribute to a Roth IRA and
your spouse can contribute to a Spousal Roth IRA as well.
Remember, these accounts are
owned by the individual person and on paper, not co-owned by both people. I want to try to encourage you to max out your Roth IRA every single year, if possible, because if you
don't do it for that year, then in the future you
cannot go back and contribute for a previous year once that time limit has passed. A Roth IRA is one of those accounts where I would bend over backwards to make sure that I can
put in the full amount allowed every single year. In my order of operations for
what to do with your money, I have maxing out a Roth
IRA right after investing up to your employer match and HSA. That is how important
this type of account is. The good news with this
is that you actually have a timeframe of 16
months to contribute for each calendar year. So if we are in 2023
right now, then you have from January 1st, 2023, up until
when taxes need to be filed for that year to contribute,
which in this case, would be April 15th, 2024.
That's how it is every single year, so ignore the actual dates in my example and pay more attention to the timeframes since the date taxes are due
will change by a few days from year to year. Most brokerages will ask
you which year you want to contribute to. For example, I personally
invest using M1 Finance, which you can check out down
in the description below, and also get a deposit bonus as well. If I contributed to my Roth
IRA through them right now, then they would ask if I wanted the money to go towards 2022 or 2023, since at the time of recording this, we haven't hit the date
where taxes are due. This is great because it
gives you some extra time beyond the current year to
contribute Roth IRA money for that year. Before I tell you the next mistake that I see way too many people making, please help support my dog Molly by hitting that thumbs up
button and sharing this video with anyone you think it would help.
Once you deposit money into your Roth IRA, there's one more extremely important step you need to do that I see a ton of people missing, and that is
actually investing the money. I can't tell you how
many people I've talked to over the years who just put money into the account assuming
it would automatically grow, or knowing that they
needed to invest the money, but just forgetting to do
it because life happens, and things naturally slip out of our mind, only to check their account
balance years later, realizing that it hasn't grown in value because they didn't invest the money. Stop the nonsense here and
just set up auto investing within your investment account, and if you're waiting because you think that you can time the market
to buy in at a lower price, you can't, because it's
nearly impossible to do, so just to get the money
invested right now.
If you know how you want to
invest the money, then great. If you don't, then I personally
like the two fund portfolio for people who are in
the accumulation phase of investing and in the
three fund portfolio for when you're closer to
retirement or in retirement. I'll have a link to a
playlist then I made just for you where I teach you
about both of those portfolios down in the description below
and above my head as well.
When you contribute to a Roth IRA, all of your money is not
locked up until 59.5. You can withdraw the
contributions that you've made before that age without paying a penalty, but you cannot withdraw any of
the gains within the account. For example, if you've contributed $6500 and the account has grown to $10,000, then you can withdraw
the $6500 contribution, but you cannot touch the $3500 gain without paying a penalty until 59.5. I've gotta interject for a second to give my personal opinion on this. While withdrawing money
penalty-free is an option, I want to encourage you not to do this.
To be brutally honest, I think that doing this
is one of the dumbest, most irresponsible, short-sighted
things that you can do. Withdrawing just $6500
worth of contributions would cost you $65,000 in
future investment growth. So when any money is
taken out of this account before retirement, think
about how it's actually going to cost you 7,800 Chipotle burritos, or 65 new Apple iPhones, or anything else that you would buy for that amount of money. And yes, I am fully aware
that you can do a penalty-free early withdrawal up to
$10,000 before the age of 59.5 for a first time home purchase. But this is just as stupid as withdrawing your contributions early
because that $10,000 is costing you over $100,000
in future investment growth when you pull that money out. Average annual home appreciation over the past 12 years has been 6.11%, and the US stock market
has returned 12.27%.
Leave your money in the freaking Roth IRA and go earn that $10,000 that
you need to buy the home. Responsible investing takes time, like five or 10-plus years, and this money needs time to grow. The second you withdraw
any of your contributions, you are cutting down that tree before it even has a chance to grow fruit. Once you withdraw
contributions from the past, you cannot replace that
money in the future. I get that emergencies happen in life, so that's why you need
to have money set aside in an emergency fund to
pay for those things.
Do not, under 99.999% of circumstances, use your Roth IRA money for anything other than when you retire. One thing I see way too many people doing is investing in a
taxable brokerage account before they have their Roth
IRA maxed out for the year. This is a huge mistake from a tax savings
perspective for some of you because of how each account is taxed. With a Roth IRA, you invest with money
that's already been taxed, so the money can grow tax-free
and be withdrawn tax-free.
With a taxable brokerage
account, you are paying taxes for the ongoing dividend
distributions every single year. Then you have to pay capital gains tax when you go to withdraw the money. Since the money within
a Roth IRA will grow and can be withdrawn tax-free, realistically, you want
this account to get as large as possible, but not at the expense of
your personal risk tolerance. You should not take on
additional levels of risk by investing in more
risky, unprofitable stocks that random YouTubers have been pumping over the past few years or actively manage funds to
try to achieve higher returns.
99% of people, including
myself, cannot handle investing in something with a
high risk and potential, potential, high return. So don't even bother. The money in this account
is for retirement, so is it really worth it to risk that 60-year-old's financial wellbeing because you decided to gamble with their money right now? I doubt it. Some of you might be over
the income limit to be able to contribute to a Roth IRA, or some of you will be at
that point in the future as your income grows. You can still contribute to a Roth IRA to take advantage of the tax-free growth by doing a backdoor Roth.
To simply explain the process,
all you do is contribute to a traditional IRA. Do not invest the money yet. Then contact your brokerage
to have them convert the money to a Roth IRA. Now, I have done it with M1 Finance before and it was extremely easy. It only took I think two or three days for the money to get into my Roth IRA. Only do this if it makes sense based on your current tax rates
and future financial plans. There's two things that you can do. if you are someone who thinks that you might be over the income limit, but you are not going to 100%
know until the year is over. Number one, you can
either wait until January of the following year,
like we talked about in one of the previous mistakes that
I mentioned, or number two, you can just contribute the
money to a traditional IRA, then do a backdoor Roth within
the year to get the money into the account so it can be invested.
That way, if you are
over the income limit, you've already done the backdoor Roth. If you're under the income limit, no big deal 'cause you had to pay taxes on that money that was going
into the Roth IRA anyways. A question I get a lot is
whether or not you can contribute to a Roth IRA on different brokerages. The simple answer is yes. This is how it would play out. You can contribute up to the max for one year
on, say, M1 Finance. Then you can decide to contribute up to the max on fidelity the next year. Then you can contribute up to the max on Vanguard the following year. So by the end of that third year, you would have three different Roth IRAs with three different brokerages, and there is no problem with that.
You can take it one step further. If you decide, hey, out of these three, I actually like M1 finance
better than the other two, you can convert the
Roth IRAs with Fidelity and Vanguard into your
M1 Finance Roth IRA. You can also split up your contribution for the same year among
different brokerages. So if for this year you want
to say contribute $4,000 to an M1 Finance Roth IRA and the remaining $2,500
into a Fidelity Roth IRA, then you can do that without any problems.
The only thing you
cannot do is try to game the system by saying contributing $6500 into an M1 Finance Roth IRA and $6500 into a Roth IRA with another brokerage. You cannot exceed the maximum
amount allowed per year across all of your Roth IRAs on all of your brokerage accounts. Technically, you could do that since all of the brokerages aren't talking
to each other to keep track of what you are contributing, so you have to self-manage this.
I would highly, highly recommend making sure
that you do not do this, whether it's on purpose or on accident. I don't know what the penalty is for this, but all I know is that you do
not want to get caught trying to defraud the government
in any way, shape, or form. Long-term investing is the name
of the game with a Roth IRA. This money is for when
you are in retirement, so make sure to take that into account when investing this money. No gambling it on stocks
that random YouTubers are promoting. I think the two or three fund portfolio is perfect for your Roth IRA, which you can learn more about
in these videos to your left.
There's a bunch of free stocks and resources down in
the description below to help with all of your personal finance and investing needs. I'll see you in the next one, friends, go..
You’re Retiring. Now What? Retirement Planning: A Reassessment [2022]
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
[Music] Consuelo Mack: On WEALTHTRACK, why a reassessment
of retirement planning is in order. Christine Benz: Given how elevated the market
is and low return expectations for fixed incomes securities for stocks, the tricky part is
that people embarking on retirement today need to probably take less than that four
percent, they would probably need to start more in the range of three percent. [Music] Consuelo Mack: Morningstar's personal finance
guru Christine Benz joins us with her checklist on Consuelo Mack WEALTHTRACK. Announcer: Funding provided by ClearBridge
Investments, Morgan Le Fay Dreams Foundation, First Eagle Investment Management, Royce Investment
Partners, Matthews Asia and Strategas Asset Management. [Music] Consuelo Mack: Hello, and welcome to this
edition of WEALTHTRACK. I'm Consuelo Mack. One of the biggest changes of the past year
has been the record number of Americans who are quitting their jobs. It is so pronounced that it has a name. It's called the Great Resignation. The so-called quit rate has exceeded pre-pandemic
highs for months. Millions of Americans have walked out the
door. A sizable number are starting their own businesses. According to the Wall Street Journal, since
the pandemic began, the number of unincorporated self-employed workers has risen by more than
half a million to nearly 10 million, one of the highest levels in years, and the number
of applications for federal tax ID numbers to register new businesses soared to nearly
five million, the highest number on record.
Another huge contributor to the Great Resignation
is the surge in retirement. Since March of 2020, the number of adults
55 and older who retired was nearly two million more than the rate was pre-pandemic. What the Great Resignation means for retirement
planning is just one of the items on Christine Benz’s Financial To-Do List this year. Morningstar's Director of Personal Finance
is joining us for the 4th year in a row to help us get in personal financial shape. Benz, a WEALTHTRACK regular, is an acknowledged
personal finance guru. She has held the title of Morningstar's Director
of Personal Finance since 2008. She writes daily personal finance columns
for Morningstar, does interviews and podcasts, and is the author of several books, including
30 Minute Money Solutions, A Step-by-Step Guide to Managing Your Finances, and The Morningstar
Guide to Mutual Funds: Five Star Strategies for Success.
She has also been named to Barron's List of
100 Most Influential Women in U.S. Finance for the last two years. I began our conversation by asking her about
the impact the Great Resignation could have on retirement planning. Christine Benz: Well, I think there are a
few things that people who are hanging it up from work need to be thinking about with
respect to retirement planning. One is that there's, sort of, the standard
rule of thumb for thinking about whether you have enough for retirement, and that's called
the Four Percent Guideline. And it basically means, could you live on
four percent of your portfolio plus whatever income sources you might have? So if you're taking Social Security, you'd
have that too. The tricky part is that given how elevated
the market is and low return expectations for fixed income securities, for stocks, the
tricky part is that people embarking on retirement today need to probably take less than that
four percent.
They would probably need to start more in
the range of three percent. So I think people who are looking upon, drawing
upon their portfolio for their living expenses need to use that as a quick and dirty starting
point for assessing the viability of their retirement plans. Consuelo Mack: That's a big drop, Christine. I mean, from the four percent has been the,
kind of, the traditional assumption that you should plan on taking four percent of your
retirement savings, whatever, and that will last you for 30 years.
And, certainly, if you retire early, you're
going to have a longer retirement plan, but you're saying three percent, in general, now
that's the new standard? Christine Benz: Our research concluded that
if you have a 30-year time horizon, a balanced portfolio and you want to have like a 90 percent
probability of not running out of money during that 30-year time horizon, 3.3 percent is
a good starting point, that's probably overly precise I think if you were to be in that
three and a half percent range. But, certainly, people who have extended time
horizons, so people who expect to be retired for 40 or 50 years, and this would apply to
people in their 40s who are retiring today, they'd want to set that withdrawal rate even
lower, probably in the realm of two percent. And there, that starts to begin looking more
challenging in terms of, could you live on that amount? Consuelo Mack: And Christine, as far as the
Great Resignation is concerned and more and more people being self-employed, I mean, that
means they're not going to have a regular paycheck.
So the impact on retirement planning for someone
who's self-employed, what should they be thinking about? Christine Benz: Well, certainly, people who
are embarking on self-employment do have some vehicles that they can use to continue to
fund their own retirements. So IRAs, SEP IRAs for self-employed individuals. Health care, though, is a big wild card for
self-employed people, as you know.
And so I think it does make sense to really
make sure you have a good health care plan. I think that's one big impediment to people
being more entrepreneurial, that they're worried about how they will do for health care coverage. But oftentimes you do tend to see this trend
when people embark on self-employment, investing in their business comes first, and oftentimes
they do tend to short shrift their own retirement. So it's super important to keep that in mind. If you are self-employed, make sure that those
ongoing retirement plan contributions are part of your budget. Consuelo Mack: Christine, thinking about the
new three and a half percent withdrawal rate, there are some more flexible strategies that
you're suggesting. What are they? Christine Benz: Well, the name of the game
is that you want to be able to withdraw less if you happen to encounter a down market,
and that's particularly important in the early years of retirement.
There's this phenomenon that retirement researchers
call sequence of return risk or sequencing risk. And that basically means that you retire and
then encounter a lousy market environment right out of the box. That's the thing you worry about, and one
way that you can protect yourself against that is potentially taking less in those down
markets. So in our research, we tested a number of
different flexible strategies, and that's really a commonality among them. They help new retirees take a little bit more
initially than that 3.3 percent or 3.5 percent that we talked about, in exchange, though,
the trade-off is that as a retiree, you have to be prepared to take less.
So, one really simple tweak to, sort of, the
fixed real withdrawal system that underpins that four percent guideline or the 3.3 percent
guideline in our world is to simply forego inflation adjustments. So forgo inflation adjustments in the year
after your portfolio has endured a loss. We found that that is a really simple strategy
that actually does help enlarge retirees’ portfolios over their lifetime. There are a number of other, more complicated
strategies. Another one we looked at is called the guardrails
system. This was developed by financial planner Jonathan
Guyton and William Klinger, who's a computer scientist. It's a little bit more complicated. It ensures that the retiree takes less in
down markets, but in exchange, he or she can take more when the portfolio is up. So in environments like right now, you'd be
able to get a little bit of a raise because the market has been good. That strategy is more efficient. It means that the retiree consumes more of
his or her portfolio over the lifetime, but it also tends to leave less at the end.
So for people who are really bequest-minded,
such a strategy wouldn't be a great idea. Consuelo Mack: Talking about flexible strategies,
obviously we would take into account if we are eligible, our Social Security income stream,
which is inflation protected. But also, what about annuities, which in the
past have gotten a bad name, but that's another possible income stream possibility that we
should consider, right? Christine Benz: Absolutely. I think job one, even before you start thinking
about withdrawal rates, is to look at your non-portfolio income sources. Looking at Social Security, looking at an
annuity, possibly. And the reason is that we've got more and
more folks who are coming into retirement without the benefit of pensions. So the name of the game is to look at your
fixed cash flow needs, and then try to match them to non-portfolio income sources.
Annuities do have a bad name, and I think
rightfully so in some respects, largely because you've got some incredibly opaque, expensive
products, but there are also some really good annuities that do offer lifetime benefits. I tend to favor the very simple, plain vanilla
annuities that fixed immediate annuities or fixed deferred annuities where there's a lot
of transparency. For consumers, they tend to be lower cost
and you can easily comparison shop.
And I would also say, if you're thinking of
an annuity as part of your toolkit, don't go straight to the insurance company, go to
a fee-only financial planner. Get some objective guidance on whether that
makes sense for you, given your situation. But the important thing about annuities is
that, as an annuity purchaser, you benefit from what's called longevity risk pooling,
meaning that you are in the pool with other people. Some will die younger than expected, some
will live a lot longer. You hope you'll be one of the longer-lived
ones. And in so doing, you'll be able to enjoy a
larger sum of money out of that annuity than will people who die earlier.
Consuelo Mack: One of the criticisms of annuities
recently, even the fixed income annuities, is that interest rates are so low, so the
returns historically are low. Christine Benz: Well, that is a risk factor
that interest rates are very low, so, arguably, you're locking in a fairly low payout. So there are a couple of workarounds, one
would be to do a series of annuity purchases over a period of several years. But one other risk factor that I think does
loom large with annuities is inflation risk, which is certainly front and center for a
lot of people today, especially retirees. Most annuities do not offer an inflation adjustment
in that payout. So if we do see inflation run much higher
than it has historically, that would be a risk factor for new annuity buyers.
The main benefit of annuities is that longevity
risk pooling, and that does tend to elevate payouts from annuities quite substantially
above what you get with fixed rate investments. Consuelo Mack: Talk to us about of how we
protect ourselves and our portfolios against inflation. Christine Benz: Yeah. It's a huge topic today, obviously. I think it makes sense to kind of think of
this problem as two sides of a ledger. So I would start by looking at your expenditures,
and I often think about this column that Jason Zweig wrote probably a decade ago. He called it me-flation, and the idea is that
we don't experience inflation as CPI. We each have our own consumption basket, and
some people might have higher inflation because the stuff they're spending on is inflating
at a higher rate than CPI. Some people may have lower rates of inflation. So, really, take stock of how you're spending
your money.
If you're a homeowner, the nice thing about
that is that at least your housing costs are somewhat inflation protected. You may have sort of ancillary housing costs
if you're paying people to do things around your house or your home heating costs may
be going up, but at least your, sort of, main big ticket housing expense is locked down. Health care costs have historically been inflating
higher than the general inflation rate. The good news is that, right now at least,
health care costs do appear to be running below CPI, which is somewhat rare and it may
— Consuelo Mack: It is.
Christine Benz: — sort of reverse itself. So think about how you're spending your money
and then turn your attention to whether you are protected in terms of where you're getting
your income. So if you are someone who is earning a paycheck
and you're eligible for cost-of-living adjustments, well, those are, at least in part, making
you whole with respect to inflation, they're helping you keep up with CPI. In a worst-case scenario, say you are a retiree
and you're drawing exclusively from a portfolio of fixed rate investments for your withdrawals,
for your income, you're not at all inflation protected.
And you really need to think about, well,
how can I protect this plan? How can I protect my withdrawals from inflation? And that's where I think stocks serve a great
role. They're by no means any sort of direct inflation
hedge, but they, over time, do tend to have higher returns than inflation, which is one
reason why I think even older retirees would probably want to make room for stocks as a
component of their portfolio. Within the bond piece of your portfolio, if
you're retired, especially, I think it makes sense to consider Treasury Inflation Protected
Securities or i-bonds. And these are basically Treasury bonds that
give you a little bit of a nudge up in terms of your principal and in turn your income
when we see inflation running up. Consuelo Mack: Another suggestion, Christine,
that you've sent me on your to-do-list is the fact how essential it is to look at your
portfolio and consider rebalancing your portfolio.
U.S. stocks have done really well, U.S. growth
stocks have done really well and stocks in general have done well versus bonds. Is this a good time to rebalance? Christine Benz: I think it is. I'll keep banging this drum. I think I said that a year ago, too, and yet
we've seen kind of a similar performance pattern. U.S. stocks have performed very, very well,
but I do think that this is a nice way, without having to get too cute about timing the market,
this is a nice way to ensure that your portfolio's risk level stays in line with your targets. Annually, take a look at your asset allocation
relative to your target. If you're retired, I think the good news is
that we've had a strong stock market and your cash flow needs for the next couple of years
are probably hiding in plain sight in terms of your appreciated equity assets. Think about taking some money off the table
there, plowing it into safe investments that you can live on and that will give you peace
of mind, you'll leave a good share of your portfolio in stocks and it will give you peace
of mind to be patient with them if they do encounter some volatility.
Consuelo Mack: We're talking about rebalancing
and taking profits in a highly appreciated asset class and shifting them over to one
that hasn't appreciated as much, but that's going to involve taxes. Christine Benz: Right. Consuelo Mack: So talk to us about the tax
considerations. Christine Benz: It's crucial to be thoughtful
about this and to the extent that you have tax deferred or other tax advantaged assets,
it really does make sense to focus those activities in those accounts because you can trade all
day long. Not that you should, but you could trade a
lot and not incur any taxes, even if you're selling appreciated winners. So the good news is that, for many retirees,
the bulk of their assets do reside in tax sheltered vehicles where they can make those
changes.
They might owe taxes on the distributions
that they take, but the repositioning would not entail any taxes. If you're a younger investor, not yet retired,
focus those rebalancing activities within your tax-sheltered accounts. Also take care with respect to converting
IRA assets, traditional IRA assets, to Roth. You sometimes hear that that's a good strategy. Be careful about doing that when the market
is elevated, because the taxes that you'll owe on those conversions will depend on your
gains, the size of your balance and the amount that you're converting. So get some tax help. Whether you're doing this repositioning to
get your portfolio back into balance or whether you're doing IRA conversions, get another
set of eyes on what the tax implications might be.
Consuelo Mack: And another tax friendly strategy
is, of course, charitable donations, right? Christine Benz: So true. Consuelo Mack: Yeah. Christine Benz: The charitable contributions
of appreciated securities. You can do that at any age. You can actually get a donor advised fund
into the act where you can donate those appreciated securities, even employer stock to a donor
advised fund. And the beauty of that is that you can take
your time and be deliberate about making those charitable contributions. You can direct those contributions over time. Older adults who are required to take minimum
distributions from their IRAs can also use what's called a qualified charitable distribution,
where they donate a portion of their RMDs to charity. There's a little bit of a disconnect with
the ages, you can start the QCD, the qualified charitable distribution, at age 70 and a half.
RMDs kick in at age 72. So if you're 70 and a half, start looking
at this strategy, it's absolutely phenomenal and it is a way to lower your tax bill and
also lower the amount of balance that will be subject to required minimum distributions
down the line. Consuelo Mack: For those still working, you
check your retirement plan contributions. So talk to us about what's changed this year
from last year. Christine Benz: We're seeing a little bit
of an increase in 401K, 403B, 457 contribution limits. So going up to 20,500 in 2022 for people who
are under age 50. If you're over 50, you can take $27,000 in
terms of 401K contributions. So if you haven't revisited those contributions
that you're making, check to see if you're on track to make the maximum allowable contributions.
IRA contributions are staying the same for
2022, but take a look at whether you are on track to max out your IRA contributions. I love the idea of automating those just as
you do with 401K contributions, where you're signing on the dotted line with your IRA provider
to make ongoing contributions. The nice thing is, is that you can just invisibly
make those contributions. It doesn't give you time to equivocate about
whether it's a good time to make those contributions.
They just come right out of your checking
account. Consuelo Mack: We've had a 10 year — longer
than 10-year bull market now. For retirement planning, what are the risks? I mean, are there psychological risks to having
this prolonged bull market? Christine Benz: I think it's a good news,
bad news story. So we were talking earlier about that lower
withdrawal rate that is in order. The good news is it's a lower withdrawal rate
on a larger balance for many retirees. So it may translate into a higher dollar withdrawal
than would have been the case 5 years ago, because if you've been investing, if you've
been in the stock market, you've enjoyed that nice appreciation, but it is a lower percentage.
But I do think the psychological aspect of
this is huge, Consuelo, because a lot of retirees have been through many market downdrafts. And so their risk tolerance, their comfort
level with risk is higher than it will ever be during their lifetime, just as they're
embarking on retirement. The problem is their risk capacity, their
ability to absorb that risk, as they get into drawdown mode, as they get into drawing upon
their portfolios, that's actually diminished a little bit. So it's an odd disconnect, and I think it's
important to keep in mind the distinction between risk tolerance.
It may be high at retirement. Risk capacity is lower because you're going
to be starting to draw upon that portfolio, and you certainly don't want to be drawing
upon a 100 percent equity portfolio. You want to have safer assets that you could
draw upon if a bad market materializes especially early on in your retirement. Consuelo Mack: So the common wisdom is as
you get closer to retirement is to increase your defensive assets, and even though bonds
don't feel like they're defensive, that that's what we should be doing, and cash, certainly,
which has been really criticized and kind of diminished as far as Wall Street is concerned,
its value, but it can be quite valuable. So that type of strategy is still in place
as you get closer to retirement or in retirement is to increase your defensive assets.
Christine Benz: Very much so. The way I think about it is, given how low
yields are, it's not return on capital. You will not get much in terms — Consuelo Mack: Right. Christine Benz: — of a yield or a return
from these investments. In fact, current yields are really good predictor
of what you're able to earn from fixed income assets over the next decade. Well, that's a low return, but it is return
of principle that we know, especially during equity market downdrafts, we know that high
quality fixed income securities tend to hold up relatively well during those periods, and
that's really what you're looking for. You're looking for something that will hold
stable during that period when you're needing to spend from it. So I do think that the rule of thumb or the
thought about de-risking a portfolio as retirement draws close absolutely still holds up Consuelo Mack: One investment for a long term
diversified portfolio, Christine, what would you have us all on some of? Christine Benz: Well, we've been talking about
inflation protection and worries about inflation, and so I do think that people who are looking
at retirement and getting close to spending from their portfolios might consider an investment
in Treasury Inflation Protected Securities.
And one fund I like of this ilk is Vanguard
Short-Term Inflation Protected Securities. It is a very low-cost product. It's very conservative, so your return will
not be great over your holding period, but it will do a good job of defending against
inflation. And unlike some other Treasury Inflation Protected
Funds, it tends to not be very interest rate sensitive, so it invests in short-term Treasury
Inflation Protected Securities. So it tends not to be buffeted around by interest
rates. And that's a good thing, especially if you're
worried about inflation. We often see higher interest rates go hand
in hand with inflation. And so in such a product, in a short-term
TIPS Fund, you'll be relatively protected from some of the interest rate related volatility
that often accompanies longer term TIPS Funds. Consuelo Mack: All right, Christine Benz,
thanks so much for joining us — Christine Benz: Thank you, Consuelo. Consuelo Mack: — with your annual to do list. Christine Benz: It's my pleasure. Consuelo Mack: It’s always our pleasure
as well. Thanks, Christine. Christine Benz: Thank you so much. [Music] Consuelo Mack: At the close of every WEALTHTRACK,
we try to give you one suggestion to help you build and protect your wealth over the
long term.
This week's Action Point is think twice before
joining the Great Resignation Movement. As we just discussed, retirement tends to
be longer and more expensive than most of us realize. Early retirement can really put a dent in
your retirement income. Self-employment is very appealing, but it
does have some drawbacks. Lack of a regular paycheck, benefits and matching
401K contributions, plus all of the backup services we take for granted. Offices, supplies, tech support, etc. are
expensive. It pays to do some hard analysis with family,
friends and advisors before walking out the door. Next week, Social Security guru Mary Beth
Franklin updates us on managing that crucial retirement program and other strategies to
maximize retirement income. In this week's extra feature, what keeps Christine
Benz motivated as the incredibly busy multitasking head of personal finance at Morningstar.
For those of you active in social media, please
follow us on Facebook, Twitter and our YouTube channel. Thanks for sharing your precious time with
us. Have a super weekend and make the week ahead
a healthy, profitable and productive one. [Music].
How Much Money You Should Have Saved At Every Age | Retirement Savings By Age
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
hey everyone this is lauren mack with hack in the rat race when it comes to retirement and strategies for saving for retirement people often ask how much money should i have saved at every age in order to reach my retirement goals this can be a very difficult question to answer because so much depends on one's lifestyle age in which they want to retire goals during retirement and so on in this video i'm going to talk about how much money you should have saved at every age for a typical american planning for retirement if you stay until the end of this video i am going to share with you a tip that you might be able to use in order to dramatically reduce the amount of savings you will need in retirement and possibly reduce the amount of time you'll have to work in order to get there additionally if you watch this video and think you're behind or maybe you haven't even started saving then i have created a workbook called from xero to retirement which walks you step by step through getting your finances in order and saving for retirement i'll put a link to it in the show notes below so let's jump right in the key to having enough money to live comfortably in retirement is to start saving as early as possible this means starting in your 20s most people in their 20s are just embarking on their careers whether that's freelancing in the digital economy starting a business entering a trade or finishing up college and starting a career either way people in their 20s usually have very little save for retirement and more often not can find themselves in debt due to school loans training startup costs or even entering the workforce and that is okay if you happen to be someone in your twenties who has managed to avoid debt and have money saved then congratulations you are ahead of the curve the best piece of financial advice i could give someone in their 20s is to start creating good financial habits while in your 20s because it will be a tremendous benefit throughout your life at this age there really is no specific amount that you should have saved although the more the better i usually recommend that if you're in your 20s you should at least have an emergency fund of one to two months worth of expenses saved up the reason having an emergency fund is that it can help you avoid falling into the debt trap i actually recommend that people of all ages have an emergency fund set aside that is easily accessible in cash so this is a good habit to begin early speaking of debt many people in their 20s are fresh out of school finally making some good money and it can be very tempting to rush out and finance and purchase a fancy car maybe some designer clothes or even a sweet bachelor pad but avoid the temptation to do that of course when you're just starting out there are necessities such as getting a car to get you to work or maybe suitable clothing for work however it's important to try not to live beyond your means or max out your credit cards many times when you do get your first job one of the benefits offered to employees is a company sponsored retirement account like a 401k oftentimes the company match meaning to a certain percentage the company will match the amount you put in so if the company match is 5 then if you put in 5 they will match your 5 i always recommend signing up for a corporate sponsor retirement account in my videos and i always suggest contributing at least up to what the company will match because this is like getting free money and it's considered part of your compensation package what if you work for yourself as a freelancer entrepreneur or work for a company that simply doesn't offer a retirement account then i recommend opening an ira or roth ira and contributing to the annual maximum limit ira stands for individual retirement account if you want to learn more about the difference between 401ks iras and raw diaries i created a video called roth ira versus traditional ira versus 401k i'll link to it above and in the show notes below to sum it up life in your 20s should be all about establishing good money habits make sure you have an emergency fund of at least one to two months of expenses three to six months would be ideal set up a retirement account either through an employer-sponsored 401k or your own ira or roth ira and lastly make sure to avoid the debt trap live within your means the more you can start investing early on as possible the sooner you'll be able to retire so now let's talk about your 30s by now you've most likely been in the workforce for a while and hopefully things are progressing well with your chosen occupation many experts recommend by the time you reach 30 years old you should have one year of salary saved up so for example if your annual salary is fifty thousand dollars a year then you should have fifty 000 saved up and invested this amount of savings should be in addition to the three to six months of savings that should be tucked away in your emergency fund in order to protect you from falling into the debt trap because of job loss medical bills car repair speaking of debt by the time you reach 30 you really should try to eliminate what i consider bad debt some examples of these are credit card debt car loans student loans etc paying on these types of debt each and every month prevents you from investing the difference and limits your ability to further invest and contribute to grow your nest egg as you saw in the earlier example in your 30s it can be tempting to keep up with joneses and live beyond your means many of your friends and acquaintances will take out large loans to buy an expensive home they'll borrow large sums of money in order to buy a luxury automobile in order to give the illusion of wealth avoid falling into this trap and feel tempted to compete with these people by making the same mistakes 98 of the time these wealthy people are actually highly leveraged and truly broke the best way to get out of the rat race meet your retirement goals and even retire early and wealthy is to live frugally and within your means okay so now you've reached 40 and you've managed to not succumb to the debt trap that so many people fall into in their 30s you should be more financially stable than you were in your 30s so how much should you have saved for retirement by now well most experts recommend that you have three times your annual salary saved up so for example if you make sixty thousand dollars a year you should have a hundred and eighty thousand dollars saved up and invested in addition to this should be maxing out your contributions to your retirement account that we've been talking about that is really important not only to help grow your investment but contributions to your retirement account can decrease your overall tax liability it is also a good idea at 40 to buy a house home ownership is really important because home values tend to rise over time if you buy a home at age 40 with a 30-year mortgage and make all your payments your home will be paid off by the time you're 70 and you've reached retirement therefore reducing housing expenses in retirement once your home is paid off then it becomes an asset this also gives you the option of selling it once you reach retirement downsizing paying cash for a new property that's worth less than the value of your home therefore giving you the extra cash to help you pay for your retirement another benefit of owning a home or rental properties is leverage which is the mortgage if you put twenty thousand dollars down on two hundred fifty thousand dollar house and the value rises ten percent then your returns twenty 25 000 instead a 10 return on 20 000 is 2 000 as you reach 50 years old many people are well established in their career and hopefully have managed to get a few raises over the years and are now making even more money at this point you should save around five times your annual salary so if you make sixty thousand dollars a year then you should have three hundred thousand dollars saved for retirement you should really be noticing the compound interest effects now due to all that diligent savings over the years once you turn 50 years old the irs allows you to start making catch-up contributions to your retirement accounts which means you're allowed to contribute higher limits to the annual contributions so you should be taking advantage of this in order to grow your retirement account quicker and also reduce your overall tax liability another recommendation at this age is to continue to remain debt free live frugally and continue to pay down your mortgage by age 60 now you're getting close to retirement by this age it is recommended to have seven to eight times your annual salary saved up so if you make sixty thousand dollars a year then you should have four hundred and eighty thousand dollars saved for retirement you're probably debt free now and really enjoying watching your savings and investments grow at this point it might be tempting to start dipping into your retirement savings however avoid doing this keep up the study savings pace many people are still working and earning great incomes in their 60s and can really boost their retirement accounts if they have fallen behind in the early years hopefully by now your home is either paid off or close to being paid off which should give you peace of mind as of now you should be eligible for social security benefits but you might want to put that off as long as possible to be able to receive the maximum amount of money you can go to the social security website they have a form where you can enter your information and it will give you estimates of what to expect at different ages i'll put a link to it in the show notes below you'll be able to determine at what point it makes sense to take it out and how much will be added for waiting and if you're just starting out saving for retirement and you're still relatively young don't assume you will have social security benefits when you reach your 60s or 70s many experts debate whether they'll actually be enough money to pay out those benefits in the future now for the bonus tip like i said at the beginning of this video having enough money for retirement depends mostly on your lifestyle cost of living and retirement in america however these days more and more people are choosing to retire outside the united states where the cost of living is dramatically less and they can have a much better standard of living for substantially cheaper than the us the thought of retiring abroad might sound frightening to some people and i get it but i have traveled to over 58 countries and lived all over the world and i can tell you that you might be quite surprised retiring abroad is not unusual in fact many americans choose to either retire early to stretch their retirement savings even further by joining the ever growing list of american expats who are deciding to retire abroad many countries around the world entice retirees by offering retirement visas to come spend their golden years enjoying the beaches golf courses and laid-back lifestyle in their country i personally know so many people who have chosen this option and none of them have regretted it you're probably thinking oh lauren what about the health care overseas it cannot be as good as the u.s well my husband and i have received medical care in numerous countries all over the world including emergency surgeries from countries in southeast asia south america mexico europe and i can tell you that every time we receive medical care it has been as good or better than the care we received in america and the bill was certainly much less expensive if this sounds appealing to you then take a few scouting trips to some countries where you think you may want to live and spend some time checking it out and meeting up with some expats that live there to get their impression of what it's like to retire abroad in the country that you're considering now i want to hear from you in the comments section would you like me to do a video on retiring abroad have you been considering moving abroad to retire if so where let me know in the comments below if you're watching this video and you're thinking lauren i am so far behind or i haven't even started is it too late then watch this video right here
5 Retirement Tricks You Were Never Taught
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
these five ideas took me 20 years to find out as a financial advisor and also make sure to view them all since I don'' t recognize which ones are going to reverberate with you I can show to you number 5 is my personal favored but leave in the comments what your favorite is fine let'' s go with a stroll uh and the very first suggestion the initial suggestion uh that once again they didn'' t instruct us in college they didn'' t instruct us in secondary school and however life didn'' t educate me a lot of us these points we had to discover them on our own uh which is this is not our moms and dads retired life right we are healthier than our parents were uh travel is a fair bit more economical and easier today than it'' s ever been I ' ve been lucky in the last 3 or four years to be able to function from another location from 30 various nations and I can inform you my smart device had has actually made that experience so much simpler finding an area to stay obtaining from the bus or the trains terminal or the airport terminal to where I'' m remaining finding the the place that I desire to you recognize the cafe I wish to go to or the gallery or the basilica or you recognize whatever the visitor destination is it'' s a whole lot less complicated with the smartphone so uh this is not our parents retired life this is not uh resting around viewing tv and fishing I'' m not stating that every one of our moms and dads did that but the entire globe is open to us specifically publish covid ideal um is is travel is easier it'' s much less costly than ever before so product leading is this is not our moms and dads retired life if we considered our parents and claimed ah I'' m not exactly sure I ' m that excited about retirement I assume the sort of retired life we can have is is is is truly amazing and really interesting we have to do our homework to be prepared for it uh both financially along with mentally you recognize what does retirement resemble what are we passionate concerning what are we delighted concerning how are we going to invest the moment however if we do that research I think we have an actually fun-filled retired life to eagerly anticipate all right and second is is exactly what I simply shared which is you recognize we have to do our research and I I think we have regarding a hundred hours worth of reflective job that if we do that I believe we can uh really feel like we'' re well ready uh beyond the monetary facets for our return atmosphere and also then on top of that naturally the financial aspects are vital I would urge you to use a cost just monetary expert have a professional strategy prepared for you it doesn'' t have to be insane costly but you wear'' t intend to think that you ' re all right you'need to know that you ' re alright you ' re we economic advisors can not give you assurance however we can offer a lot of clarity simply Google cost only monetary expert near you I maintain claiming cost only monetary expert due to the fact that they have a fiduciary commitment to place your rate of interest ahead of their own 100 of the time as well as that'' s actually essential yet returning to second doing our homework it'' s not simply the finances of it you recognize it'' s what ' s your purpose going to be a great book to assist you consider your purpose is a publication called stamina stamina to strength by Arthur Brooks what are you going to do with your time you'' re mosting likely to have a whole lot of time in retired life and what are things that are really vital for you as well as simply check out the collection of videos that that I carry YouTube I'' ve I ' ve covered this topic uh several times and various other YouTubers have also so think concerning exactly how you'' re mosting likely to invest your time I can show to you high degree after doing a whole lot of reflective work as well as having actually guided other individuals via it right I indicate you simply can'' t aid yet also think concerning you know how does every one of this apply to my scenario the four areas that I'' m very fired up regarding during retired life is number one having time for connections I have a mom who'' s 87 years of ages lives a pair thousand miles away I was privileged adequate to be able to invest two weeks being a type of her key caretaker were my sis uh went on vacation finally it had been the pandemic because before the pandemic that she'' d been able to take a vacation so connections and also buying partnerships the time for that I'' m looking for or 2 as well as all for me every one of these are burglarized concerning a four so there'' s four of these the 2nd one uh is taking taking care of my wellness doing what I can to remain healthy because uh retired life is mosting likely to be a heck of a whole lot more fun if I'' m healthy so uh a 4th of my time on wellness and after that I'' m a long-lasting student I like learning so understanding is is continuing to discover proceeding to enroll uh proceeding to simply find out brand-new points I'' ve done numerous points I uh when I was much younger I was uh taking flying lessons and I'' ve actually obtained the score that you require to work for the airlines I instructed myself just how to code this YouTube thing so remaining to learn is essential to me and after that the fourth area is giving back as well as as well as for me that that suggests points like this YouTube channel right uh teaching as well as mentoring and mentoring and sharing the expertise that I have uh with people that I believe it can aid so those are the four areas for me that'' s what ' s right for me it'doesn ' t'mean that it ' s right for you um let ' s see and after that the the last one regarding preparing your research is you understand if you reside in the USA we need to think of what are we mosting likely to do for healthcare insurance up until we'' re 65 as well as you understand there are people that can aid you keeping that the only financial advisors can assist you with that said there'' s Professionals that focus on this area however there are remedies to that so however do your research before you make the leap you wish to see to it you'' ve got that base covered all right number three uh the number 3 concept um here that no one educated you regarding retirement uh as well as I suggested to it in the last thing which is wellness is more crucial than riches you understand actually actually do what you can we you know we can'' t prevent cancer cells we you understand we can do what we can we can eat right we can exercise we can do all of those things uh and as well as hopefully that will certainly aid maintain you healthy and balanced longer as well as with any luck fend off any of these terrifying illness that none of us desire alright so simply do what you can to remain healthy number number four is um you you don'' t need to fully retire right if you have a lot of stress at job um if if you'' re prepared for a change of pace if you'' re close financially and also you wish to make the jump you understand there there are part-time work out there there are side hustles out there that you can do side businesses that you can start uh so if you'' re close to retirement if you ' re like boy I ' d really like to retire earlier as opposed to later it doesn ' t have to be uh All or Absolutely nothing there'' s other means to make earnings and also the concern is you understand is is 50 totally free far better than no percent free on being retired you understand could you take a seasonal work as well as perhaps just work 3 months out of the year I stated in various other videos when my youngsters were more youthful I made use of to instruct a handful of weekends winter sports uh at a regional ski hotel so my whole family would obtain free ski tickets but there are these seasonal jobs and also is it much better to be 50 complimentary 80 percent free as well as work seasonally or function part-time work 20 hours a week so as to get health treatment advantages points like that so as well as there'' s no right or wrong solution it'' s just you know depends on um uh what'' s right for you fine number 5 as well as I'' ve obtained a Reward one below so put on'' t wear ' t uh disappear after number 5 uh before we obtain to number five if'you ' re enjoying this video please offer me a like uh the thumbs up it does assist the YouTube algorithm discover other individuals that ideally my channel can assist number 5 um is it'' s okay to have a back-up strategy you recognize pertaining to um number four you know maybe you think you have sufficient cash to retire or you intend to save uh a buffer and you'' re gon na work an additional two or 3 years to get this buffer uh and also you recognize what having a little money having this pillow makes a lot of feeling but you obtained to take care due to the fact that one year can conveniently develop into three or 4 years um so possibly you'' re in rather of having that buffer you have a backup plan where you'' re gon na have a part-time work you'' re mosting likely to have a you ' re mosting likely to develop a side rush if you need to in order to give yourself that barrier if if you hop on the unfortunate side of series of return risk which is when the market is adverse for very first couple years of of retirement or in the very first couple of years of retired life because that'' s when your sum of cash is the greatest uh it'' s when you ' re most prone to unfavorable returns and also as well as none people understand if if we'' re going to get hit with that or otherwise however perhaps the barrier possibly the insurance coverage if you will certainly versus that is a readiness to function part-time or to produce a side hustle business if you do get struck by that all right and afterwards the last thing I intend to leave you with and also it'' s it ' s a stating in my industry um you for lots of people they put on'' t require more money they just require a plan they need a tactical plan what are the important things that are vital to you what are those things mosting likely to cost and afterwards just how do you accomplish those and also you know I truly motivate you to connect to a cost only monetary advisor as well as state Below'' s my scenario can you aid me assume via am I am I shut to being able to retire are there things that I'' m not considering that might enable me to retire sooner as opposed to later on and to find a cost only monetary advisor just Google one I maintain saying charge only economic advisor because they have a fiduciary obligation to you as well as that'' s essential so I hope this video clip has actually been useful if you'' ve appreciated this one I understand you'' re going to enjoy this video clip up right here that speak about the ordinary earnings for senior citizens in America and also this video down below that talks regarding five factors to retire as quickly as you can many thanks for seeing bye bye
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