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.
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.
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.
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.
A recent article on LiveScience.com makes the case that the way people change their lifestyle habits in retirement is not always good for them. The article comes to its findings by a review of a lot of research from around the globe between 2011 and 2013. Researchers in one Dutch study found that those who do exercise in retirement probably don't do enough to make up for the amount of daily activity they had done while working. The study also found that those who were forced into retirement tended to drink more than those who retired voluntarily.
We all know it's important to stay active, social and (at least somewhat) sober in retirement. But it's important to do the same before retirement, and many of us do not. I think the best answer is to develop the healthiest habits you can before retirement and make them a priority. Develop a routine that can't be broken, even when one aspect (the workday) is removed.
OK, I know most of you SEP IRA contributors are busy thinking about your 2013 SEP contribution, and only IRS trends spotters like myself really care about next year's numbers. But for my fellow nerds, the 2014 SEP Limits have been announced! Can I get a 'heck yeah!'
I'm not that much of a nerd. But I do have a SEP IRA myself. It's one of the handiest tools in my personal retirement toolkit. Find out why you might want a SEP IRA for your self-employed or small business.
I'm still waiting anxiously for the IRS to officially announce the 2014 contribution maximums for 401(k) plans and IRAs. There have been a lot of projections and speculations about what will happen this year, so I've created some articles that include the projected numbers based on the calculations of a few organizations, including 401(k)helpcenter.com.
Just remember, these are not the final numbers. Once the IRS recovers from the government shutdown and announces the official data, I will update these articles and keep you posted. For now, we can assume that little will change from 2013 to 2014 when it comes to IRAs and 401(k)s.
This week the Washington Post reported on a new poll by the Associated Press and NORC Center for Public Affairs Research, where some 82% of respondents over age 50 say it's at least somewhat likely they will work in retirement. People are retiring earlier too, with just under 50% of respondents saying they expect to retire an average three years later than they had originally planned.
In a sense, this news is OK. Because we are living longer, we probably should be working longer. Many think the retirement age is far too low considering our rapidly increasing life spans. Plus, if it's true that 40 is the new 30, then 60 is the new 50. There's plenty of living, working, and wealth accumulating left to do in your spry 60s.
What do you think? Should we be working longer? Should you? Share your thoughts.
I'm on eggshells waiting to see what will happen to 2014 IRA and 401(k) plan contribution limits. The IRS should announce it any day (perhaps the government shutdown is slowing the process?), and I will have updates here as soon as that happens.
See, the amount you can put into your tax-advantaged retirement plan is limited each year. And it goes up over time, typically each year or every other year, depending on inflation. One blogger at The Finance Buff did the calculations himself and says the limits will likely remain the same in 2014. I believe it's possible, but I try to avoid DIY tax publishing. I would prefer to have the government's confirmation before making any plans. So stay tuned!