Taxable Accounts and when to use them . . .

A good article about when to use taxable accounts.  Generally, it is best to use an employer sponsored tax-deferred account (e.g., an IRA or a 401k plan) when saving for retirement.  Such accounts typically allow for pre-tax contributions, tax free growth of your money, and sometimes even include employer matching contributions.  However, some folks may not have access to an employer sponsored plan and are limited to the $5,500 or $6,500 (for those 50 and over) one can contribute per year to an IRA.  Although, saving approximately $6,000 per year is not a bad start, saving even more improves your likelihood of retiring earlier and living life a little more comfortably.  Hence, the first instance of utilizing a taxable account is to save more for retirement.  Such taxable accounts should take advantage of tax managed assets, i.e., securities that don't provide regular capital gains and dividend income but focus on stock price appreciation, index funds, or tax free bonds.  Other instances ripe for utilizing a taxable account include:

• You wish to retire before age 59 1/2; such taxable accounts would not be subject to the early withdrawal 10% penalty;

• You are saving for a long term goal (a long term goal other than college - you can use a 529 for college goals); or

• You may wish to actively trade or speculate with a small portion of your money.

A penny saved is a penny earned, even in taxalbe accounts!

Two really important retirement charts; however, I believe the second chart is more compelling. Which do you think is more important?

This article provide two really good charts.  The first chart covers what investing $5K, $10K, or $15K annually over five year increments will accrue an investor when returning 8%.  Off course, the earlier you start, the better the results.  But, the real benefit of this chart is revealed when one estimates the annual income produced from this nest egg when using a 4% withdrawal rate.  Tellingly, the second chart shows that 20 years of saving $15,000 at 8% yields $29,000 in annual income in retirement, but start a mere 10 years earlier and that $15,000 at 8% for 30 years yields $72,000 in annual income (almost 2 and 1/2 times greater).  I believe the second chart helps to put in more concrete terms what a retiree can expect from their nest egg in retirement; notwithstanding, that a back of the envelope 4% withdrawal calculation will not work for every retiree's unique and particular circumstances.

Want a more secure retirement? Plan as if Social Security will not exist . . .

There is a great chart in this article showing how saving $500 per month (at a 7% rate of return) will enhance your retirement's success rate.  At $500 per month you are only saving $6,000 per year (far below what your 401k plan allows).  For example (in calendar year 2018):

• Employees under age 50 can save up to $18,500 per yer in their employer sponsored 401k plan, plus any employer matches, plus up to $5,500 in an IRA; or

• Employees over age 50 can save up to $18,500 per yer in their employer sponsored 401k plan, plus a $6,000 401k catch-up contribution, plus any employer matches, plus up to $5,500 in an IRA, plus a $1,000 IRA catch-up contribution.

Notably, even saving at $500 per month from the age of 25 (at a 7% rate of return), one can amass nearly $1.7M by age 70 (per the article).  Not a bad a result for a small (noting that everything is relative) sacrifice!  However, start at the age of 50 and you will only accrue $246K . . . it pays to help youself and your children to start saving early for retirment!

Waiting until 70 may not be the best strategy for claiming Social Security . . .

Well, according to Suze Orman just about everyone should wait until 70 years of age.  I read the same AARP article as Sean and was a little concerned also by her advice.  Social Security planning is not a one-size fits all solution.  Waiting until 70 may make for a worthwhile mass media sound bite (and, logically, one should wait if they can afford to), but many folks can't or shouldn't wait.  Why shouldn't they wait?  Consider the following:

• Maybe longevity does not run in your family;

• Maybe you have a chronic illness/condition;

• Maybe an individual can't work or can't find work commensurate with their education/experience level;

• Retirees who have too much debt; and/or

• Folks who are willing to accept a lower standard of living so they don't have to go to work anymore.

How much money do I need to retire?

A good article that aggregates the different websites and theories (from a percentage of your pre-tax income to 12x's your final pay) that one can use to estimate how much income they will need to retire.  As a general rule of thumb, aim to save at least 12% to 15% of your gross annual income (including employer matches) each year.  Also, don't forget, the more lavish one's lifestyle is during their working years, the more money they will need to accrue in order to maintain that standard of living during retirement!

Filing for Medicare can be different from filing for Social Security . . .

In order to avoid costly penalties, everyone needs to remember to file for Medicare during the seven (7) month window around their 65th birthday.  Filing for Social Security can occur at the same time, but need not.  Remember, every year you delay taking Social Security increases your benefit by about 8% a year.  So, although you need to file for Medicare around your 65th birthday, you can delay filing for Social Security until your 70th birthday to receive your maximum allowed benefit.

In your 40's and worried about Social Security?

Social Security Crisis?

There has been a lot of talk about Social Security drying up by 2034 and what that means for individuals in their 40's and younger.  However, if you are not concerned about payroll taxes and the funds acquired from the taxation of Social Security benefits being diverted away from the program, then a 21% reduction in your Social Security benefit may keep 79% of your benefit in your pocket until 2092.  Not the best news, but not the worst.  All the more reason to save early and often!

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