Retirement Article Roundup

June 1st, 2010  |  Published in Retirement  |  2 Comments

Since I have been too lazy to write my own posts for this blog lately I thought I would share with you a few retirement related posts from the past couple Carnival of Personal Finance and elsewhere.

  • “How to select the right IRA beneficiary” from Wealth Pilgrim.  He basically says the youngest beneficiary is the best beneficiary but read the post to see why.
  • “Ways to trick yourself into saving for retirement” from Pop Economics.  These are some simple behavioral adjustments that could help you save more for retirement.  Plus the site has cool art.
  • “Traditional and Roth IRA contributions and phaseouts” from Smart On Money.  This is something I have posted on before but this post sums up the subject nicely.
  • “Living to 100 and beyond: How will it affect your retirement plans?” from Invest it Wisely.  Living a really long time will definitely impact your retirement plans.

There are always plenty of interesting articles on retirement.  I will post a new article here later in the week.

Obama Automatic IRA Proposal

January 27th, 2010  |  Published in IRA  |  4 Comments

As part of Obama’s middle-class plan he includes a proposal for an automatic IRA. This has been proposed before but it has never been implemented. Here are a few details of this plan.

Under the plan certain companies that do not currently offer a retirement plan would be required to enroll their employees in an IRA. An automatic deduction of 3% would come out of the employee’s paychecks and be deposited into the account. The employee could opt to lower or raise the deduction or opt out altogether. It is not yet determined what would be the default investment for the IRA.

The positive benefit of an Automatic IRA would be that more workers would be covered by a retirement plan. Currently about half of the workforce lack employer-based retirement plans. Many workers delay contributing to a retirement plan and an Automatic IRA would greatly increase employee savings rates.

The negative aspect of an Automatic IRA is that it would be an added administrative expense for small businesses. Although those proposing the Automatic IRA state that the expense would be low it remains to be seen if that is actually the case.

Income Limits on Roth IRA Conversions Set to End

December 22nd, 2009  |  Published in IRA, Roth IRA  |  3 Comments

Currently if you earn over $100,000 you are not eligible to convert your Traditional IRA to a Roth IRA. The Tax Increase Prevention and Reconciliation Act of 2005 abolished the income limit and the change will take effect as of Jan. 1,2010. The government has also included a one-time option to spread your tax payment over two years. If you convert in 2010 you could pay 50% of the tax owed in 2011 and 50% in 2012. You will need to plan ahead to decide whether it is better for you to pay the total tax bill in one year or two.

Whether you should choose to convert or not is another question. This depends on whether you would come out ahead paying the taxes at the time of conversion or when you retire.

Also as noted in a previous 2010 Traditional IRA conversion post the removal of the income limits for conversion creates a loophole that effectively removes the income limits for contributing to a Roth IRA.

You Can’t Borrow From An IRA

March 9th, 2009  |  Published in 401K  |  Comments Off on You Can’t Borrow From An IRA

The question of whether or not you should rollover an IRA comes up a lot and my general rule of thumb has been that rolling over a 401(k) to an IRA is usually a good thing. There are exceptions to the rule but in general it’s always better to go with a low cost mutual fund provider like Vanguard Group or Fidelity, rather than the home grown funds your employer has. In the cases where the plan administrator is a large mutual fund company like Vanguard or Fidelity and they do offer low cost mutual funds, it might not be that big of a deal. My first employer was large enough to run the 401(k) in-house and so our funds were home brews. They were perfectly fine funds, they just had your average actively managed expense ratios and I was looking for the sub-1% Vanguard index funds, so I left.

However, there might be one reason why you might not want to leave your 401(k) – loans. With a 401(k), you can get a loan from your 401(k) and then pay yourself the interest. In general, it’s not a good idea because your funds can’t grow because you’ve borrowed them. Don’t be fooled by the interest payments, you’re still paying yourself and your money isn’t growing. However, borrowing from the 401(k) might be better than borrowing from a bank, or worse. With an IRA, there’s no opportunity to borrow… you can’t borrow from an IRA at all. There’s a little loophole that lets you “rollover” the funds but that restricts you to sixty days, you have to deposit the funds within 60 days or it counts as an unqualified distribution and you owe taxes and a 10% penalty.

So, the next time you consider rolling over an IRA, remember that you lose the ability to borrow from it.

Roth IRA & IRA Contribution Deadlines Approaching

March 5th, 2009  |  Published in Retirement  |  Comments Off on Roth IRA & IRA Contribution Deadlines Approaching

Just a helpful reminder to everyone thinking about a Roth IRA or a Traditional IRA, the deadline for your contribution is coming up. Not surprisingly, it’s April 15th. When you go to make your contribution, the maximum is $5,000 this year ($6,000 if you are 50+), be sure to mark down that you are making a 2008 contribution or the broker will automatically assume it’s for 2009.

Don’t forget to make your contributions!

Don’t Check Your Retirement Account Balance

September 17th, 2008  |  Published in Investing  |  3 Comments

This really only applies to people who are decades away from retirement.

This week started off rough. Merill Lynch agreed to be purchased by Bank of America, Lehman brothers filed for bankruptcy protection, and AIG looked about fifteen minutes away from also filing for bankruptcy protection. On Monday, the Dow Jones Industrial Average fell over five hundred points, it’s largest drop in six years. Five hundred points… or around 4%. It wasn’t alone though, all the other major indices posted huge losses too and were quickly followed by all the major Asian indicies who fell 5-6%.

That’s when I logged into my Vanguard account to check out my retirement accounts. They were all red. The sad thing wasn’t that they were red, they’ve been red since last year, but they were in deep.

That’s when I realized something… don’t look at my retirement account balances. Just don’t. I can’t touch those retirement account assets until I’m sixty, which is over thirty years away for me. I rebalanced them late last year and my target retirement date is around 2040, so these swings (even though they’re huge) shouldn’t affect my thinking.

Poverty Effect

The Wealth Effect is a phenomenon where people spend more because they are or feel richer. One of the ways people feel richer is when they see paper profits on their brokerage holdings lists. When a stock does well, people feel richer even though they haven’t realized the profits yet. Likewise, the reverse is also true (the Poverty Effect). If you look at your portfolio and see huge losses, it’ll have an effect on your thinking. You’ll do something rash like sell your holdings in the target retirement 2050 fund when you should really wait.

You Shouldn’t Do Anything Anyway

What happens if you retirement funds have a one day surge and you’re up big? Are you going to sell it? Of course not, you’ll smile, the wealth effect will make you feel warm and fuzzy, and you’ll go about your day. That’s the same way you should react when you see a big drop. You should do nothing. So, skip the poverty effect and save yourself some grief by not checking.

Four Reasons Couples Should Stagger Retirement

September 2nd, 2008  |  Published in Retirement  |  Comments Off on Four Reasons Couples Should Stagger Retirement

An important question you should ask yourself, as a couple nears retirement, is whether they should stagger retirement. It’s a topic that is worth exploring with your loved ones because there are many financial and relationship issues that accompany retirement and those can be, in part, alleviated if you opt to stagger your retirements. An article on outlines some of the financial considerations but there are also relationship ones to consider as well.

Retirement Contributions

By keeping one spouse at work, he or she can continue to contribute towards IRA and 401(k) programs. Every extra year of contributions will help ensure a solvent and fruitful retirement because it’s adding more into the retirement nest egg. Plus, the one income acts as a source of money so that the retired spouse can turn to that, rather than his or her accounts, for funding – thus increasing the longevity of their retirement nest eggs as well.


One of the biggest costs of retirement is medical and health insurance. With one spouse working, you can have a company help alleviate that cost (or more depending on the generosity of the company), which can help the bottom line. By waiting, you can have one spouse retire before 65, when Medicare kicks in, and then have both retire once they reach that age limit.

Social Security

You can begin taking Social Security as early as 62 but to maximize your total gain from the program, you have to wait until “full retirement age,” which can be four years later. By keeping one income, you can put off taking SS payments and maximize your total payout.


One of the biggest complaints about both couples retiring is that they now find themselves spending nearly every waking moment together. It can be difficult on a relationship to spend that much time together. By staggering, one spouse gets to try out retirement, find a rhythm and some hobbies, such that both aren’t sitting there watching TV and not knowing what to do. When one discovers a routine, the other can join or discover their own routine. There isn’t a case of two people not knowing what to do other than they have to do it together. 🙂

Don’t Gamble Your Safety Net

July 3rd, 2008  |  Published in Retirement  |  4 Comments

If you’re like me, you recently saw your retirement accounts take a pretty sizable hit. In fact, since October of last year, the markets have been down 20%. 20% puts it into bear market territory and something that probably makes you shudder to think about it (I know I do). You might be tempted to change directions, pull out of what you’ve invested in so far and going with something riskier to make up the losses. Please don’t.

Your retirement nest egg is your retirement safety net. You can gamble away your taxable investments, you can put your emergency fund into a hot new tech startup (I wouldn’t), and you can take your Latte Factor and blow it on the ponies – just don’t mess with your retirement accounts. Let them stay the course and you’ll be rewarded in the long run.

To put our current difficulties in perspective, consider that since the 1920s, the S&P 500 has returned a historic 11% year over year. That’s through numerous bear markets, including the recession in the 1980s and the tech bust the few years after 2001.

If you can’t stomach it and want to pull out, pull out. Just don’t gamble it on a potential shooting star.


My Retirement Blog was included in this week’s Carnival of Personal Finance at Greener Pastures.

Roth IRA: No Required Minimum Distribution

June 19th, 2008  |  Published in Roth IRA  |  Comments Off on Roth IRA: No Required Minimum Distribution

If you have a Traditional IRA or 401(k), you are required by tax rule to start taking required minimum distributions (most of the major brokerages have tools to help you manage this) by April 1st of the year after you turn 70 1/2. One of lesser known benefits of a Roth IRA is that there is so such similar requirement to take required minimum distributions. You are in total control when it comes to RMDs and Roth IRAs.

Granted, you can begin taking distributions at 59 1/2 on 401(k)s, so by the time you reach 70 1/2 you may need those distributions. However, it’s always nice to know that you can take out your funds on your terms, especially since the government won’t have let you touch it without penalty (outside some generally negative situations, first home excluded).


My post on Naming Beneficiaries on Retirement Plans was selected as an Editor’s Choice at the Money Hacks Carnival #17 – Music of the ’80s hosted at Mrs. Nespy’s World. Thanks!