While it’s generally a good idea to defer as much income as possible into your available IRAs, 401(k)s and Roth accounts, as with everything else in life, too much of a good thing can be a problem as well. When you have the bulk of your financial assets in retirement plans, you might accidentally expose yourself to some risks that you haven’t thought about… since retirement plan assets are much more likely to be impacted by changes to legislation – as we have seen in the past. In these days when Congress is looking for money just about everywhere, it’s not a stretch to imagine new legislation coming down the pike to tax retirement plan assets (like the excess plan accumulation tax that has been proposed). Other possibilities include accelerating required minimum distributions to achieve a faster payout taxation of the plan and eliminating the “stretch” provisions (this has already […]
retirement savings
Don’t Dismiss That “Small” Pension
Frequently, I’ll meet with clients to go over a retirement plan. As is typical, we look at current investments, account balances, Social Security, etc. Often these conversations revolve around distributions from retirement plans and cash flow planning to reduce the probability of portfolio failure, and ensuring an income stream that is congruent with the clients’ retirement goals. Sometimes clients will also have small pensions from their current or former employer and they will tell me that they are small, trivial, or not worth considering. Whenever I hear those words or something similar, I try to explain to the clients that however small or trivial, it’s still a guaranteed income stream that will last the rest of their lives in many cases. For example, I have seen clients think that a $150 monthly pension wasn’t a big deal. But when I present to them that there’s an amount for a “date […]
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Tough Love on Saving for Retirement (for Millennials)
Periodically, I read articles that appear antithetical to the premise of paying yourself first and saving as much as you can, as early as you can to have enough saved for retirement. In the last few weeks, I’ve read two articles – one saying that traditional retirement savings for millennials is useless, and the other saying that it was ok that you’re not saving enough for retirement. Both articles mention their collective disdain for the recent tweet by Jean Chatzky saying that by the time you’re 30, you should aim to have 1x your salary saved, 3x at 40 and so on. I happen to agree with Ms. Chatzky. In fact, you should aim to have more if possible. In my opinion, both articles disagreeing with Ms. Chatzky (as well as the replies to her tweet) seemed befitting of excuses – which are easier to agree to, and may encourage […]
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Your 401k and IRA in 2018
Recently, the IRS just announced the contribution limits for 401k plans (including 403b and 457 plans) as well as IRAs. Additionally, the IRS also announced changes to the income phase-outs for traditional IRA deductibility and Roth IRA eligibility. Let’s start with the 401k plans. For 2018, the IRS increased the contribution limits to $18,500, up $500 from $18,000 last year. The catch-up contribution for those age 50 or over remains unchanged at $6,000. $500 may not seem like much, but think of it this way – you get to give yourself a $500 raise! For those interested in maxing out their 401k plans in 2018, here’s the breakdown depending on whether you’re paid monthly, 24 weeks per year or 26 weeks per year. If you’re paid monthly, the contribution is $1,541.66. This brings you just eight cents under the $18,500 max annually. If you’re paid 24 weeks per year, then […]
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Can I Retire Early?
Many individuals at some point in their life and career wonder if they can retire early. First, retiring early is relative to the individual. That is, retiring early for one person may mean retiring at age 55. To another, it may mean retiring at age 30. When teaching, I’ll ask my students what the “retirement age” is. Answers range from 65 to 70. Inevitably, I will get asked the question, “How much money do you need to retire?” And the answer is the crux of this article. Whether an individual wants to retire can be based on several factors such as money saved, age, job satisfaction, and health. For example, an individual may never want to “retire” if they love their job, or if they find fulfilment and purpose while at work. For some individuals, the choice to retire isn’t a choice. They must continue to work to cover expenses, […]
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The Retirement Answer
Although I will admit that the title of this post is a bit glamorous, I wanted to share the simplicity of the message. Typically, every morning we will sit down to eat breakfast. Meals at our house are generally jovial, with discussions ranging from which animal would win in a fight to how my kids will spend their day. A few mornings ago, however, my oldest asked me a rather interesting question. Knowing what I do for a living she asked, “Daddy, what do you have to do to retire?” My immediate response was, “That’s a great question!” At age 7, my heart swelled that she was already thinking about retirement. Before I could give an answer she quickly quipped, “Wait. I know. You have to save enough money so that one day you can retire.” I was speechless. Pretty profound for a 7-year-old. Finally, I replied, “That’s exactly what […]
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How to Make Your Saving Automatic
Sometimes it can be difficult to save for emergencies or for retirement. While physically not demanding, the mental strain can be a hump that is hard to get over. In other words, we experience a little bit of “pain” or mental anguish if we have to physically hand over money or write a check. So how can we overcome this anguish? Automate. First, determine how much you need for an emergency. This can either be to start the fund or to replenish amounts that have been used. Generally, it’s a good idea to have 3 to 6 months of non-discretionary expenses (expenses that don’t go away if you lose your job or become disabled) set aside in an FDIC insured bank account. Some individuals may find it more comforting to have 6 to 9 months or 9 to 12 months. It’s up to you. For retirement, I recommend saving 15 […]
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Should I Pay Off Debt or Save for Retirement?
Over the last few weeks I’ve gotten quite a few questions from individuals ready to graduate college and start embarking on their first job. As is often the case, many of these individuals have varying amounts of student debt but also understand the importance of saving for retirement. Naturally, a common question is should they pay off student loans or save for retirement. Here’s my take. As I’ve mentioned in previous posts, there are few ways to receive guaranteed returns. One of those ways is by paying down debt. This is an example of a guaranteed rate of return that is also risk free. By paying off a loan early, the interest that would have normally gone to the lender ends up in your own pocket. The good news is that the debt is retired faster, and the individual experienced zero volatility exposure compared to investing in the market. On […]
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Multiple Income Streams
This post is primarily geared toward younger individuals just starting out after college or from graduate school. However, the information can be used by anyone looking to boost income in order to increase retirement savings, pay off debt earlier or simply to put them in a better position financially. In financial planning we often talk about risk management as one of the bricks to the foundation of any solid financial plan. Generally, when we say risk management we think of auto, home, life, disability and other insurance coverage in addition to an emergency fund. Another area of “insurance” would be creating additional or multiple income streams as a hedge against losing an income source due to downsizing, termination, etc. If none of the aforementioned negative events occurs, then the extra income can be used to bolster retirement savings, reduce debt, or save extra for college. The point is that if […]
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How to Pay Off Students Loans and Save for Retirement
Very often in my classes I get asked the question “What should I do first, pay off student loans or save for retirement?” My goal is to give some perspective on approaching these two very important issues. Generally, holding student loans and making the minimum payments can lead to an unnecessary amount of interest being paid. For example, if an individual has a student loan at 6%, then that loan is earning 6% but for the lender not for the student. Many individuals find themselves wanting to pay off their student loans as quickly as possible. On the other hand, recent college graduates are also faced with the decision to save for retirement. Many of them have heard that it is wise to start saving when they are young in order to let compounding work its magic. However, many individuals are confused as to which situation they should take care […]
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5 Secrets About Your 401k Plan
Many folks have a 401k plan – it’s the most common sort of retirement savings vehicle that employers offer these days. But there are things about your 401k plan that you probably don’t know – and these secrets can be important to know! The 401k plan is, for many, the only retirement savings you’ll have when you reach your golden years. Used properly, with steady contributions over time, a 401k plan can generate a much-needed addition to your Social Security benefits. But you have to make contributions to the 401k plan for it to work, and invest those contributions wisely. So how much do you know about your 401k plan? Below are 5 secrets that you probably don’t know about your 401k plan. Check with your 401k plan administrator to see if these provisions are available – some plans are more restrictive than others. Secrets You Don’t Know About Your […]
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How to Save Money
Many individuals hear the mantra to start saving money early, put something aside for retirement, or start accumulating a nest egg. However, as much as those mantras are good advice, sometimes an individual needs a specific direction on how to get started. Hopefully, this post can provide some of that direction. Whether you’ve just graduated high school, college, or have been working for a number of years, if you haven’t started saving for an emergency or retirement, there’s still time to do so. It’s never too late. One of the first things an individual can do is simply take a look at what is coming in and what is coming out of their income. An easy way to do this is by looking at the last three month’s bank statements. This will give an excellent representation of what income was coming in and what was being spent. From there, start […]
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The Power of Compounding
Many individuals understand the power of compound interest. They understand that compound interest means money or interest earned on interest received. That is, if I earn 5 percent interest annually on one dollar, in one year I’ll have $1.05, but in two years, I’ll have $1.1025, not $1.10. Granted, this may not seem like a lot; and it isn’t. But on several thousand or hundred thousands of dollars it really starts to add up. This post is mainly for those individuals who haven’t heard of this concept or haven’t started utilizing it to their advantage. Mainly, I’m addressing millennials and college students. Those individuals in the cohort I’m address have one powerful thing on their side: time. We’ve written before on this blog about the power of time and starting to save early. We showed the comparing of someone starting right away either during or right after college and another […]
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Am I Saving Too Much?
This post is in response to a question an individual had for me when I was meeting with her a few months ago. The question she had for me and the title of the post was if she was saving too much money. The reason she asked is that after a conversation with friends of hers, they had collectively told her that she was saving too much money for retirement. Currently, this 25 year old was saving 26% of her income for retirement! My verbal response was a firm, “Well done!” My internal response was, “Get some new friends.” Her friends were trying to convince her that 10% was more than enough to save for retirement at such a young age. While 10% is a decent amount to put away, 26% is even better. In addition, this young lady was already used to saving 26% of her income. It wasn’t […]
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A Brief Explanation of the Thrift Savings Plan (TSP)
I love the TSP and the fund options it offers. Participants (generally government employees and military) have access to very low cost index fund options and a handful of target date funds (L Funds) that incorporate different combinations of the individual index fund options depending on what stage you’re at in your retirement savings journey. I wish more employer sponsored plans mirrored the TSP’s simplicity, low costs and efficiency. Employees may or may not have access to a match on deferrals, depending on their employment class. The TSP has a number of different fund choices available. The G Fund invests in short-term Treasury securities that are specifically issued for the TSP. The principal and interest are guaranteed by the US Government but they are not inflation protected. That is, these funds may have returns below the inflation rate. The C Fund is the common stock fund designed to replicate the […]
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Mandatory Retirement Plans
A few weeks ago I finished a paper arguing for mandatory retirement contributions from both employers and employees. Though arguably the paper will not come close to changing public policy on retirement plans, it did raise some arguments in favor of the United States adopting a mandatory savings plan. In the paper I explained that research has shown that individuals risk not having enough saved for retirement. This could be due to employees not having a retirement plan through work or because employees face an abundance of mutual fund options in the plan that they don’t know where to begin. Some of these employees choose the default option or simply go with what a colleague recommends. Another problem the paper addresses is the declination of defined benefit pensions. Such pensions are employer sponsored and funded, thus removing funding an investment risk from the employee. At retirement the employee receives a […]
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Analyze your assets to avoid missing the mark
When we talk about financial fitness, one of the measures that is most important to the conversation is the value of our assets. There are really five different kinds of assets that we should consider: Personal Assets. Clothing, furnishings, and jewelry fit into this category. Most of this “stuff” decreases in value to less than half what we paid for it before we even get it home. Household Assets. This includes real estate, cars, and appliances. Most of these items either appreciate in value over time or provide a fair value over their life (in relation to renting the service). The total value of these assets must be reduced by any loans that we have against them – such as mortgages and auto loans. This will produce a net value of Household Assets. Employment Assets. Some employers still provide for a pension for their employees’ retirement. This pension has a […]
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Should You Delay Retirement?
The question of delaying retirement may arise as you get closer to your “goal year” of when you want to retire. For some individuals’ fortunate enough to be covered under a company or state pension, it can be tempting to retire as soon as possible and collect the pension benefit. The same may be true for folks wanting to start taking Social Security at age 62. Before making the decision to retire or retire early an individual should consider the effects on delaying retirement and continuing to work. This is assuming that they can accrue extra pension benefits for the extra years of service. For Social Security, this would be delaying past an individual’s normal retirement age as long as to age 70. For example, let’s say an individual has the opportunity to be eligible to retire at age 55 and receive a pension of $5,500 per month. However, if […]
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The latest in our Owner’s Manual series, A 401(k) Owner’s Manual, was published in January 2020 and is available on 
A Medicare Owner’s Manual, is updated with 2020 facts and figures. This manual is available on 
Social Security for the Suddenly Single can be found on Amazon at 
Sterling’s first book, Lose Weight Save Money, can be 
An IRA Owner’s Manual, 2nd Edition is available for purchase on Amazon. Click the link to choose the 
Jim’s book – A Social Security Owner’s Manual, is now available on Amazon. Click this link for the 
And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.