Your Unbiased Advisor: Your RMD--Correction

Will a $250,000 retirement fund be enough?

CORRECTION

Last week: “Your RMD will tell you how much you need in retirement” blurb was misleading. RMD is the required minimum distribution from your deferred retirement accounts (401k, 403b, other pension) so that income taxes can be assessed. The amount of your RMD is calculated by your mutual fund or brokerage from IRS tables based on your age and deferred accounts total at the end of the previous year. Because we all must withdrawal our amount, use an RMD calculator to test the total amount we will need to live on in retirement: our nest egg. https://www.aarp.org/work/retirement-planning/required-minimum-distribution-calculator.html For instance, if I need $833 a month, $10,000 a year for my basic needs, I use this calculator to estimate how much of a fund to accumulate. Based on this estimate, I will need to accumulate at least $250,000 in order to cover my basic spending. The IRS tables and our life expectancy changes so don’t use this calculator to determine your RMD for yourself. You can take your RMD out of one account, or take bits from each one, so long as you withdraw the required minimum amount. You can take more but it is taxed.

https://www.amazon.com/What-your-RMD-much-spend/dp/1718946716

Stocks are on sale but you must be patient

Stocks represent ownership of a company. If you are patient, the value of what you own can grow significantly. Some stocks produce dividends (profits) that are taxable and some don’t. For instance, if you had purchased one share in Warren Buffett’s Berkshire Hathaway in each year since 1965, you would be a multimillionaire. You would own parts of 50 profitable companies. Each share is worth over $500,000. The value of your stocks grew at 20% a year on average but you had to be patient. (Annual report, p 3) You lost 48% of the value in 1974 but gained 129% in 2 years. Buffett does not pay dividends so you would have paid no taxes on this stock each year. You pay when you sell. However, you could borrow from your broker with stock as collateral if you needed quick money. The stock is down 10% —HALF of the broad market index decline YTD. There are many stocks that retain earnings (no dividends) so you have your choice of assets without paying tax on growth every year. You choose when to pay taxes.

No-tax alternative: https://www.amazon.com/Tax-FREE-Retirement-code-lifetime-income/dp/1475206976

Best Way to Withdraw From Your Retirement Accounts

When we retire we are faced with decisions that we should have planned before the day of retirement. Based on our goals for the future, we should have decided in advance which accounts to hit first, second and third. We should have already decided to transfer our tax-deferred accounts from our employer and former employers to one trustee—a mutual fund or brokerage. We should have already decided to take Social Security or wait to maximize our benefits. Some wait to their age 70 to receive almost double the amount at age 62. We should have already calculated our basic spending needs so that we would know we would use only the required minimum distribution not our Roth IRA or our individual securities. We should have already calculated how much tax we would pay on our RMD, Social Security and pension benefits. If we use fixed income assets like CDs and annuities, we may owe tax on these accumulations. You may have other issues and questions about the sequence of spending so a fixed-fee financial planner may be the best option at this time. A one-time fee is cheaper than 1-2% annual fee for 30 years.

https://www.amazon.com/Your-Retirement-Spending-Plan-enough/dp/1461084016

You don’t need an advisor to accumulate a $1,000,000 fund

Saving and investing is not as hard as the financial industry makes it out to be. The folks who are successful in accumulation for retirement follow a few simple rules that they learned early, usually from their parents. Schools don’t teach basic investing. They teach how to open a bank account to spend a pay check. Employers can’t give us good advice since that makes them liable for our mistakes. Rule 1: start early—use your first employer’s tax advantaged plan. Rule 2: invest in low-cost stock index mutual funds inside a tax-deferred of tax-FREE account—use an IRA if your employer’s options cost more than 0.15%. Rule 3: invest the same amount each payday. Market timing and stock picking do not work over time. Rule 4: Cost is the best predictor of success. You can plan for retirement the correct way and have a $1 million when you need it.

Use Buffett’s advice: https://www.amazon.com/Warren-Buffett-Your-Investment-Advisor/dp/1518690963

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