Get smart with your money
Today’s top story: The myRA program is dead. But there is an alternative. Also in the news: Borrowing money from friends and family when you’re in a jam, and four financial milestones to reach before you retire.
Obama-Era Retirement Plan Is Dead. Here’s an Alternative
The myRA program is dead.
Ask Brianna: Should I Borrow Money From Family and Friends?
What to do when you’re in a jam.
4 financial milestones to reach before you retire
Giving yourself a better shot at a good retirement.
Today’s top story: Learning how to ditch debt. Also in the news: How to prepare for the change from corporate career to entrepreneur, how to teach your kids to be better with money than you are, and why Millennials are paying attention to their 401(k)s.
How I Ditched Debt: Making Sense of Cents
Every penny counts.
Corporate Career to Entrepreneur: How to Prep for the Leap
Making a big change.
How to teach your kids to be better with money than you are
Learning from your mistakes.
Millennials may be far from retirement, but think ahead with 401(k)
Planning for the future.
Today’s top story: How teachers can ace retirement without Social Security. Also in the news: Why credit cards are serving big restaurant rewards, making sure your spending personality matches your credit cards, and the one mistake that can cost millennials millions.
Teachers: Here’s How to Ace Retirement Without Social Security
It varies from state to state.
Why Credit Cards Are Serving Big Restaurant Rewards
Everyone has to eat.
Does your spending personality match your credit cards?
Make sure you’re earning rewards you’ll actually use.
This one mistake can cost millennials millions
Stop avoiding the stock market.
Today’s top story: How financing a vacation with a credit card could ruin your fun. Also in the news: How immigrants can plan a comfortable retirement, how one immigrant started her financial journey in the U.S., and what to do if your defined benefit pension plan is frozen.
How Financing a Vacation with Credit Cards Could Ruin Your Fun
When the bill comes due.
How Immigrants Can Plan a Comfortable Retirement
Discovering which benefits you’re entitled to.
How One Immigrant Started Her Financial Journey in the U.S.
Studying personal finance is key.
Retirement: What to do if your defined benefit pension plan is frozen
Time for a back-up plan.
Dear Liz: What advice would you give to a Silicon Valley professional who hasn’t done a good job planning for retirement? I’m 53 and maxing out my 401(k), saving $24,000 a year with my employer matching my contributions dollar for dollar up to 6% of salary. In addition, I’m saving $50,000 to $60,000 of my $240,000 annual salary. I’m debt free.
I wish I had started saving like this early in my career. Looks like I’ll probably have to work until I’m at least 65 or 70. Any advice on retirement planning would be greatly appreciated.
Answer: Your current savings rate is impressive, but you probably should plan to work at least until your full retirement age for Social Security, which is age 67.
Retiring earlier would require you to cut back even more on your spending or increase the odds your funds won’t last you through a long retirement.
Early retirement may be involuntary, of course.
Many people retire sooner than they expect thanks to a layoff, a health crisis or the need to take care of a family member. That is yet another reason why people should get started saving for retirement as early as possible — they may not have as many years to save as they think, and making up for lost time gets increasingly difficult the longer they wait.
Most people aren’t in the fortunate position to be able to save 30% or more of their incomes in their 50s, which means catching up is close to impossible.
You may still have options if your career and your savings sprint are cut short.
If you own a home, you can tap the equity either by downsizing (selling and moving to a smaller place) or using a reverse mortgage. You can reduce your expenses, possibly by moving to an area with a lower cost of living. You can supplement your retirement income by working part-time.
You also should consider maximizing your Social Security check by delaying benefits until age 70, even if you wind up retiring earlier. Social Security benefits grow by 8% a year between full retirement age and age 70, which is a guaranteed rate of return you can’t find anywhere else.
Delaying Social Security is a way to insure against longevity — if you live longer than you think and run out of other money, that larger check can help protect you from poverty at the end of your life.
Dear Liz: I am having difficulty determining if I should invest money in my 457 deferred compensation account or in a taxable account, as I am in the 15% tax bracket.
Also, does it matter whether I invest in a Roth IRA instead of my traditional IRA? My biggest pot of money is in a taxable account, then my IRA, then a Roth. I am single, no dependents and over 50.
Answer: In retirement, having money in different tax “buckets” can help you better control your tax bill.
Taxable accounts, for example, can allow you to take advantage of low capital gains tax rates plus you can withdraw the money when you want: There are no penalties for withdrawals before age 59½ and no minimum distribution requirements.
Tax-deferred accounts allow you to save on taxes while you’re working but require you to pay income taxes on withdrawals — and those withdrawals typically must start after you turn 70½.
Roth IRAs, meanwhile, don’t have minimum distribution requirements, and any money you pull out is tax free, but contributions aren’t tax deductible.
Because most people drop to a lower tax bracket in retirement, it often makes sense to grab the tax benefit now by taking full advantage of retirement accounts that allow deductible contributions.
That means the 457 (generally offered by governmental and nonprofit entities) and possibly your regular IRA. (Your ability to deduct your IRA contribution depends on your income, since you’re covered by the 457 plan at work.)
If your IRA contribution isn’t deductible, then contribute instead to a Roth. If you still have money to contribute after that, use the taxable account.
If you expect to be in the same or higher tax bracket in retirement, though, consider funding the Roth first. Prioritizing a Roth contribution also can make sense if you have plenty of money in other retirement accounts and simply want a tax-free stash you can use when you want or pass along to heirs.