FINANCIaL
FIELd NOTES
Original Medicare vs. Medicare Advantage (“Part C”)
One of the most common questions I get from clients turning 65 is “Do I need Part C for Medicare?” Many are surprised that they don’t need Part C, otherwise known as “Medicare Advantage” at all.
There are two main ways to get Medicare - Original Medicare or Medicare Advantage.
How to Save Your Retirement Investments in a Recession
Last week I discussed how the 4% rule is a good starting place for retirees. But to get the most out of your retirement, it’s important to go beyond this. The answer for many is to use Dynamic Withdrawal Rules where spending is slightly adjusted based on the market environment.
By being flexible, you can on average spend significantly more throughout your retirement. When your withdrawal rate gets too high because of increased spending or lower returns, you cut spending modestly. When your withdrawal rate gets too low because of lower spending or higher returns, you can increase spending.
Historical Results of a 4% Withdrawal Rate (1928-2023)
One often-quoted rule of thumb in retirement planning is the 4% withdrawal rate. It suggests that retirees can withdraw 4% of their initial investment portfolio balance annually, adjusted for inflation, without significantly depleting their savings over a 30-year retirement period. But how does this rule hold up under the scrutiny of historical data, particularly for a balanced investment portfolio?
The Compounding Cost of Avoiding Volatility
With interest rates rising for cash, CDs, and bonds, there is renewed interest in owning more conservative investments instead of riskier assets like stocks. Since the best estimate of future bond returns is roughly their starting yield, 5% is probably a fair place to start (while nothing is certainly guaranteed). Stocks on the other hand have earned 10% per year on average.
For some investors, it may make sense to take less risk and “clip” the bond coupon, especially for the money they plan to spend in the coming years. But many investors, including retirees, often have a portion of their investments that are for long-term growth over 10-20+ years that have historically been in stocks…
How Big Is the Average Emergency Fund?
In the realm of personal finance, few concepts are as universally endorsed as the emergency fund. An emergency fund serves as a financial cushion, providing peace of mind and stability during unexpected events such as job loss, medical emergencies, or major repairs. But how much do people actually set aside?
According to J.P. Morgan, most have somewhere between 4-8 weeks of net income set aside…
The Tax Rules for Roth IRA Withdrawals
In a recent meeting with a client, they had two big, unexpected expenses come up – they needed a new car, and their daughter was getting married! They were concerned about how these purchases would affect their taxes. Fortunately, they have had some money saved away in a Roth IRA that they withdrew from to help mitigate the tax burden of withdrawing all that money from a pre-tax IRA.
The Roth IRA is one of the most powerful tools in your retirement planning arsenal. Its tax advantages during the accumulation phase are well-known, but understanding the rules for Roth withdrawals is equally crucial…