What’s the Ideal Way to Plan Your Retirement?

What’s the Ideal Way to Plan Your Retirement?

Blog post from DaveRamsey.com You don’t have to try too hard to come up with lots of reasons to handle your retirement investments on your own. For example, a do-it-yourself approach could save you money on advisor fees. Or, you could act on your investing decisions immediately without consulting anyone. After all, you’d be calling all the shots—and there’s no one else you can trust more than yourself, right? While it’s true no one cares more about your retirement than you do, that doesn’t mean it’s a wise decision to tackle that responsibility on your own. That’s because more than half of investors who try DIY investing end up neglecting their plan. At the other end of the spectrum are investors who are only too happy to turn over their money and their future to an advisor—no questions asked. While working with an advisor is a smart first step, it’s a bad idea to relinquish responsibility for your own retirement. Let’s see why these two approaches can add up to a disappointing retirement and how you can find a balance between the two. Approach #1: All By Myself During the Great Recession, bank failures and financial fraud were in the headlines every day. People stopped trusting financial institutions and their investing advisors—even trustworthy professionals became guilty by association. That perception has eased some, especially for advisors who proved their value to their clients during that time. But now online investing services, sometimes called robo advisors, are gaining popularity among investors who want to take charge of their retirement investments. Studies show that nearly two-thirds of investors manage their own...
How To Talk To Your Parents About Money

How To Talk To Your Parents About Money

Blog Post Originally From DaveRamsey.com It’s perhaps the only topic that will cause more awkwardness than Miley Cyrus at the Video Music Awards: talking to your parents about money. Parents are our leaders in life—our teachers. The older generations teach the younger ones. They are the ones who are “supposed” to know about money and life. By approaching an elderly parent regarding the taboo subject of moolah, they may think we are trying to subtly tell them we don’t believe they are doing a good job. So the conversation is uncomfortable before it really even begins. Here are some examples of important affairs Mom and Dad need to have in order and how their grown children can get the ball rolling: The Subject: Parents making their will and estate plan No one wants to talk about death—especially the people who are closest to it. And as if the estate conversation isn’t awkward enough, a mother or father might think their kids are trying to figure out how much they will get as an inheritance. To the parent, it sounds like the child values the “stuff” more than the person who raised them. How to address it: Keep the focus of the conversation on getting an estate plan done, not on what is being left to whom. Tell Mom and Dad you are not concerned about that; they can leave what they want to whomever they want, and you don’t care how that shakes out. Also, you can talk to each parent about how doing the will can ensure that the second parent is taken care of in case something...
Keep the 401(k) or Pay Off the Mortgage?

Keep the 401(k) or Pay Off the Mortgage?

Original Post from DaveRamsey.com Around here, we’re all about getting out of debt. We love hearing stories about folks who are gazelle intense about paying off their debt—sweating, selling and sacrificing to become debt-free. But, you may be surprised to learn there are limits to gazelle intensity. Some sacrifices are simply not worth the payoff, even when it means you’re finally debt-free. One example of gazelle-intensity-gone-wild is using your 401(k) to pay off debt. Listeners call into Dave Ramsey’s radio show all the time to ask if they should cash out their 401(k)s to pay off their credit cards or even their homes. His answer: No way! Dave Ramsey would only consider it to avoid bankruptcy or foreclosure. Otherwise, your 401(k) is for retirement only! To see why cashing out a 401(k) isn’t worth it, let’s take a look at how it could play out in a real-life scenario. Good Intentions Gone Wrong Let’s say you have 15 years left on your mortgage, and the balance stands at just about $115,000. You’re on fire to get out of debt, so you’re thinking of cashing in an old 401(k) that has a balance of $175,000 to pay off your home and finally be debt-free. Your Taxes and Fees You might initially think your 401(k) will easily pay the balance and leave you $60,000 to restart your retirement. But, thanks to taxes and fees, it will take all of your retirement savings as well as some cash out of your pocket to pay off your home. After your 25% income tax bill plus the 10% early withdrawal penalty, you’ll have less than $114,000...
Only Have a 401(k)? Your Retirement May be in Trouble

Only Have a 401(k)? Your Retirement May be in Trouble

Original Post from DaveRamsey.com Your workplace retirement plan—a 401(k) for most of us—is the foundation of a solid retirement plan. The employer match alone means you get an instant 100% return on at least part of the money you put into your 401(k). That’s why Dave Ramsey recommends you start your retirement investing with your 401(k) by investing enough to receive the full employer match. But that’s not all. Your 401(k) also has some tax benefits: Your pretax 401(k) contributions lower your taxable income, making it easier to invest more. The growth of your 401(k) is also tax-deferred, which means your money grows faster. All that is great, but it won’t be enough for most people. Once you’re getting the full employer match on your 401(k), your next step is to invest in a Roth IRA, which has several positive points of its own. Tax-Free Withdrawals Help Your Roth Live Longer Your 401(k)’s tax-deferral works in your favor while you’re investing, but when you retire, you’ll have to pay taxes on the money you withdraw. However, you’ll fund your Roth IRA with after-tax money, and it also grows tax-free. That means you won’t have to pay taxes on the money you withdraw from your Roth IRA in retirement. Here’s an example of how taxes can limit the life-span of your retirement account. Say your 401(k) and your Roth IRA both have $200,000 balances. You withdraw $25,000 from each for a $50,000 annual income in retirement. We’ll assume your income puts you in the 25% tax bracket, and for ease of calculation, we’ll also assume no additional growth after you retire....