Saturday December 7, 2013
There is a commonly held notion that a retiree can safely withdraw about 4% of a portfolio each year and not run out of money. Known as the 4% rule, it's been around since the 1990s, when financial adviser Bill Bengen wrote a famous study that considered the impacts of inflation and a variety of market conditions on a typical retiree's portfolio.
A new study of safe portfolio withdrawal rates finds that, considering today's interest rates and market conditions, 3% may be closer to the ideal. Morningstar research analyst David Blanchett, Texas Tech University professor Michael S. Finke, and American College professor Wade D. Phau, the authors of the study, found that a 4% withdrawal rate from a 40/60 stock/bond portfolio had only a 48% chance of lasting 30 years, given current bond yields and price-to-earnings ratios. Not great odds on which to bet your cozy retirement.
But 4% is still a good start for those investors with more diversified portfolios, Blanchett told USA Today, as long as you monitor your portfolio and remain flexible enough that you could live on less income later on. Interest rates may rise, which would be a boon to your income. On the other hand, stocks could fall and limit growth. You increase your odds of success if you work longer, watch your spending and make the most of Social Security, Blanchett says. And an annuity could provide an additional layer of safety.
Friday December 6, 2013
Watching a movie recently, I had to laugh when the main character, a flat-broke woman in her twenties, gets a tax refund and immediately invites a friend out to an expensive dinner. I would have done the same thing. It's a perfectly normal instinct to want so spend a little money when you have it.
We all have financial instincts, some that are ingrained and others that develop over time. I say indulge in some naughty ones--like an overly expensive dinner or a mini shopping spree--once in awhile, but encourage good ones as much as you can. Start slow, with some easy money resolutions for the New Year.
Saturday November 23, 2013
Looking for more 2014 contribution limits? There are plans that you can get through work (even if you work for yourself), known as defined benefit of defined contribution qualified plans. They used to be called Keoghs, and I sort of still use the term, though the IRS doesn't. Sometimes they are called HR 10 plans.
If you have one, you get it. And you can now get 2014 Keogh contribution limits.
Saturday November 16, 2013
I promise, I will stop looking ahead to 2014. But I still have a few more 2014 contribution limits to announce. This time for self-employed plans. I told you about 2014 SEP IRA limits, and now I have SIMPLE IRA limits for 2014 and solo or individual 401(k) limits for 2014 to share as well. You will notice that not many of the numbers have changed much, but there are a few slight adjustments from 2013 to 2014. Take a look and mark your financial calendars.