March 2014

31 Mar

Throwing Out the 4% Rule

This 1990s retirement planning principle seems questionable today.

In 1994, a financial advisor named Bill Bengen published research articulating the "4% rule," which became a landmark of retirement planning. The 4% rule postulates that a retirement nest egg can last 30 years if a retiree withdraws 4% of it per year (incrementally adjusted for inflation), given a portfolio of 50% stocks and 50% bonds. Bengen studied numerous 30-year stock market time spans to arrive at his theory, which many retirement planners took as a guideline.1

31 Mar

Guarding Against Identity Theft

Take steps so criminals won't take vital information from you.

America is enduring a data breach epidemic. As 2013 ended, the federal Bureau of Justice Statistics released its 2012 Victims of Identity Theft report. Its statistics were sobering. About one in 14 Americans aged 16 or older had been defrauded or preyed upon in the past 12 months, more than 16.6 million people.1

28 Mar

Trusts: To “B” or Not to “B”

If you have a trust in place, it may be worth your while to review the original terms. Many trust documents that were written in the 1990s and early 2000s require a mandatory A to B trust split. Originally, attorneys implemented this rule because the estate tax exemption was relatively low (about $600,000) and the estate tax rate was relatively high (55%)—meaning that an A to B trust split would minimize a family's estate tax burden.

14 Mar

High IRA Distributions May Mean More Taxes

After age 70½, you're required to take an IRA distribution every year. However, withdrawing too much in any given year can actually increase the amount of taxes you owe. The way Social Security taxation is structured, benefits become increasingly taxable as your income rises. Once your earnings (including any wages, IRA distributions, etc.) surpass a certain benchmark (known as a base level), a higher percentage of your Social Security payouts become taxable. To find your base level, take a look at the chart below.

03 Mar

Tax Efficiency

What it means and why it counts.

A little phrase that may mean a big difference. When you read about investing and other financial topics, you occasionally see the phrase "tax efficiency" or a reference to a "tax-sensitive" way of investing. What does that really mean?

The after-tax return vs. the pre-tax return. Everyone wants their investment portfolio to perform well. But it is your after-tax return that really matters. If your portfolio earns you double-digit returns, those returns really aren't so great if you end up losing 20% or 30% of them to taxes. In periods when the return on your investments is low, tax efficiency takes on even greater importance.

03 Mar

Retire at 65 … Or Not?

Your assets matter more than your age.

Isn't 65 the traditional retirement age? Perhaps, but baby boomers are modifying the definition of a traditional retirement (if not redefining it altogether). The Social Security Administration (SSA) has subtly revised its definition of the traditional retirement age as well.

If you glance at the SSA website, the "full" retirement age for Americans born from 1943–1954 is 66, and it is 67 for those born in 1960 and later. (The "full" retirement age increases gradually from 66 to 67 for those born during the years 1955–1959.)1

03 Mar

Six Creative Ways to Pay Off a Student Loan

Student loan debt is growing at an alarming rate. (The average balance for new grads? $26,600.1) And, unlike credit card debt, a mortgage or car loan, it's virtually impossible to discharge student loan debt in bankruptcy. Once you sign on the dotted line, you're on the hook until you've paid in full. Those mountainous debt payments can be quite a burden, making it harder to save for retirement, buy a home or start a business. There are, however, some things you can do to reduce that debt more quickly than you would by making standard repayments.