Latest news with #401k
Yahoo
18 hours ago
- Business
- Yahoo
What $500K in Retirement Savings Looks Like in Monthly Spending
According to Fidelity, the average person between the ages of 65 and 69 has a 401(k) balance of $251,400. However, add-ons like real estate, annuities, insurance, non-retirement CDs, savings accounts and brokerage accounts can add to that tally, perhaps bringing it all the way up to a half-million dollars. Discover Next: Trending Now: So, how much would a retiree with a $500,000 nest egg be able to spend every month without running out of money? Below we will break down the numbers, scenarios and possible outcomes. The 4% Rule Provides a Blueprint — With Caveats Retirement planners have spent decades promoting the 4% rule as a guideline for gradually spending down savings. The logic is that retirees can safely spend 4% of their savings in the first year, then adjust for inflation each consecutive year. However, Charles Schwab shared several reasons why this is only a general guideline that must be tailored to each retiree, rather than a fixed rule that can be applied uniformly to everyone. Retirees should consider the following factors about the 4% rule before customizing it to their unique situation. It assumes a 30-year retirement window. It assumes a 50/50 split of stocks and bonds. It assumes that your spending will increase each year in line with inflation, regardless of portfolio performance. It relies on historical market returns, which do not guarantee future performance. It excludes investment fees and taxes. For You: You'd Have Less Than $1,700 Per Month Your First Year As is, the 4% rule would give you $20,000 in your first year or 4% of $500,000. That comes out to roughly $1,666.67 per month. According to the most recent data from the Social Security Administration, the average monthly retirement benefit is $1,950.27. Adding that to the tally, a retiree with $500,000 who collects Social Security could spend a much more livable $3,616.94 per month. How Would the Second Year Change With Inflation? According to the most recent data from the Bureau of Labor Statistics, the current inflation rate is 2.4%. Presuming that number holds steady, here's how a retiree with $500,000 would calculate the second year's monthly spending amount. $20,000 x 1.024 = $20,480 In year two, the retiree adhering to the 4% rule with no variants would have $20,480, which leaves $1,706.67 per month. With Social Security, that's 3,656.94. More From GOBankingRates The 5 Car Brands Named the Least Reliable of 2025 This article originally appeared on What $500K in Retirement Savings Looks Like in Monthly Spending Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
a day ago
- Business
- Yahoo
Grant Cardone Explains Why The 401(k) Is 'The Biggest Scam' In Finance
Financial personality Grant Cardone has shared a bunch of hot takes throughout his career, including his latest tidbit about 401(k) and IRA plans. He refers to these retirement accounts as "the biggest scam" in finance. Cardone is bound to get some resistance since these accounts have been touted as valuable investment vehicles for many years. However, Cardone expands on his argument in a way that will leave some people considering alternative strategies to save money for retirement. Don't Miss: —with up to 120% bonus shares—before this Uber-style disruption hits the public markets $100k+ in investable assets? – no cost, no obligation. You Can't Get Out Cardone asserts that retirement plans make you a prisoner to the bank since you can't withdraw your money at any time. You must be at least 59 ½ years old before you can make penalty-free withdrawals. Some people would benefit a lot more if they could access the same money sooner. Cardone also mentions that there's a lot of friction on your way out. You will have to pay income taxes on any withdrawals you make from a traditional retirement account. The tax rates can get quite high depending on where you live. Most people know that if you avoid taxes on retirement account contributions, you will have to pay taxes when you make withdrawals. The opposite applies to Roth retirement accounts. These accounts tax you on the way in, but you don't pay any taxes on withdrawals, capital gains, or dividends. You also have to make required minimum distributions, which the IRS defines, in case you get any ideas about hoarding money in your retirement accounts to prolong your tax payments. The IRS only has RMDs in place for traditional retirement accounts. Roth accounts get a free pass from this rule. Trending: Named a TIME Best Invention and Backed by 5,000+ Users, Kara's Air-to-Water Pod Cuts Plastic and Costs — You Don't Know Which Companies Are Receiving Your Money Retirement accounts typically let you choose from some funds, but most investors do not know what they are funding. Cardone explains that your retirement account may be funding big pharma, military campaigns, and other initiatives that you may not support. Large corporations often rely on investors to remain solvent and fund new projects. Your money may be going to shady organizations if you stick it in a fund without reviewing the holdings. There's also the risk of losing money in your retirement account due to administrative fees. Some 401(k) providers charge admin fees that are close to 2%, and that doesn't even include a fund's expense ratio. These fees can eat up all of your profits and result in a net loss in your 401(k) plan. That doesn't even include the amount you'll have to pay in taxes once you are ready to withdraw your Estate Is A Tax Haven Unsurprisingly, Cardone mentioned real estate as a viable solution to retirement accounts. You can use leverage to get real estate sooner and generate monthly cash flow from your property. Real estate comes with a bunch of write-offs that you won't find with other investments. It's important to remember that real estate requires a lot of work, especially if you get started with a bunch of single-family homes. You will have to handle phone calls, regularly check properties, deal with various issues like leaks and mold, make property repairs, and do a bunch of other things. Real estate gets easier if you can invest in apartment buildings since all of the units are located in the same place. Real estate is not for everyone, but the people who master this asset can unlock some of the best tax advantages in the entire tax code. Read Next: Warren Buffett once said, "If you don't find a way to make money while you sleep, you will work until you die." Image: Shutterstock Up Next: Transform your trading with Benzinga Edge's one-of-a-kind market trade ideas and tools. Click now to access unique insights that can set you ahead in today's competitive market. Get the latest stock analysis from Benzinga? APPLE (AAPL): Free Stock Analysis Report TESLA (TSLA): Free Stock Analysis Report This article Grant Cardone Explains Why The 401(k) Is 'The Biggest Scam' In Finance originally appeared on © 2025 Benzinga does not provide investment advice. All rights reserved. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
2 days ago
- Business
- Yahoo
I Asked ChatGPT When I Could Retire — I Couldn't Believe the Answer
ChatGPT seemingly has an answer for everything, but you should be prepared that it might not always tell you what you want to hear — especially when it comes to determining when you can retire. If you're like the bulk of Americans who are behind the curve when it comes to saving for retirement, for example, ChatGPT might not give you the hopeful answer you're looking for. But when I asked that question of ChatGPT myself, I couldn't believe the answer — not because of what it told me, but because of what it asked me. Below is what ChatGPT told me when I asked, 'When can I retire?' For You: Read Next: ChatGPT Asks the Right Questions I figured that ChatGPT would ask for some data before it could spit out a retirement age calculation, but the thoroughness of its process was actually impressive. Here is what ChatGPT asked me for upon the first prompt. Current Info: Your age Annual income (before taxes) Current retirement savings (401(k), IRA, etc.) Monthly contribution to retirement savings Do you expect an inheritance? (If so, how much and when?) Trending Now: Assets and Expenses: Home equity (if you own a home) Do you plan to sell your home at retirement? Current monthly living expenses Expected expenses in retirement (monthly) Assumptions: Planned retirement age (if you have one in mind) Desired estate at death (if any) Expected investment return (average annual %) Expected inflation rate or cost-of-living increase (%) Social Security: Expected monthly Social Security benefit At what age will you start claiming it? These questions were much more detailed than the ones I've seen online with some basic retirement planning calculators. Factoring in variables like inflation or cost-of-living increases and post-retirement expenses help ChatGPT provide a much more real-world answer. So, What's the Answer? Using reasonable real-world numbers, below is the quite thorough answer offered by ChatGPT. 'Let's break down your retirement scenario based on your variables and determine whether retiring at age 67 is sustainable. Key Inputs Current Age: 50 Planned Retirement Age: 67 Current Income: $85,000 Current Retirement Savings: $200,000 Monthly Contributions: $1,000 Expected Home Equity at 67: $300,000 (sold and reinvested) Inheritance: None Monthly Living Expenses Now: $7,000 Monthly Retirement Expenses: $6,000 (inflating at 2%) Desired Estate at Death: $100,000 Investment Return: 5% annually Inflation Rate: 2% annually Social Security: $2,200 a month at 67, growing 2% per year Projections Through Age 67 We'll project your retirement savings from age 50 to 67, with: $1,000 a month contributions 5% annual return Future Value of Retirement Savings: Using compounding: Monthly investment return = 5% ÷ 12 ≈ 0.4167% 17 years x 12 = 204 months By Age 67: Your $200,000 starting balance will grow $1,000 a month contributions for 204 months At 5% return: ≈ $628,000 Add $300,000 from home sale at 67 and the Total Retirement Assets: ≈ $928,000 Retirement Drawdown Projection (Age 67 and older) Assumptions: $6,000 a month expenses (inflating 2%) $2,200 a month Social Security (starting at 67, rising 2% annually) $928,000 invested at 5% Drawdown continues until estate reaches $100,000 at death Let's look at your portfolio over time: Age Start Balance Investment Growth Net Withdrawals End Balance 67 $928,000 $46,400 $45,600 $928,800 70 $939,000 $46,950 $48,200 $937,800 75 $931,000 $46,550 $52,400 $917,700 80 $868,000 $43,400 $57,000 $854,400 85 $759,000 $37,950 $62,000 $735,000 90 $579,000 $28,950 $67,000 $541,000 95 $278,000 $13,900 $73,000 $219,000 97 $159,000 $7,950 $75,000 $91,950 Result: You would run out of money just after age 97, ending with approximately $92,000 — very close to your $100,000 estate goal. Conclusion You can comfortably retire at age 67 with: $928,000 in retirement assets $2,200 a month Social Security (rising 2%) $6,000 a month retirement spending (rising 2%) Investment returns of 5% A final estate value near $100,000 Would you like to: See a graph of the year-by-year projection? Run a scenario for early retirement (e.g., age 65)? Compare what happens with $5,500 a month or $6,500 a month expenses? Let me know how you'd like to fine-tune it.' But Even AI Isn't Perfect As impressive as ChatGPT's answers are, it's important to note that there was no critical thinking involved. The phrase 'garbage in, garbage out' definitely applies to ChatGPT, as its answers can only be as accurate as the information you feed it. This is why it still pays to work with a professional advisor when it comes to something as important as your retirement planning. If you rely on yourself to ask ChatGPT for input, it's highly likely you overlook some crucial questions that could have a big impact on your ability to retire at a certain age. A financial advisor, on the other hand, has the expertise and training to look deeper into your financial situation and ask you about variables that directly affect you personally. The bottom line is that while ChatGPT can point you in the right direction and offer you a potential road map for retirement, working in conjunction with a financial advisor can help you avoid the hidden potholes along the way. More From GOBankingRates How Much Money Is Needed To Be Considered Middle Class in Your State? This article originally appeared on I Asked ChatGPT When I Could Retire — I Couldn't Believe the Answer Sign in to access your portfolio
Yahoo
2 days ago
- Business
- Yahoo
6 Ways To Make Yourself Richer With the Last Paycheck of the Year
Your last paycheck of the year might feel like nothing special, but you can actually use it as an opportunity to improve your financial life. Discover More: For You: Not only does it come at the perfect time for a financial review, getting income before the end of the year also allows you to make some moves before the calendar turns over. Here are some steps you can take to make yourself richer with the last paycheck of the year. Maximize Year-End Retirement Plan Contributions An important move to make before the end of December is to contribute as much as you can to your employer's retirement plan. While some tax-advantaged accounts, such as IRAs and HSAs, allow for contributions all the way up until your tax-filing deadline, you can only put money into 401(k) plan and 403(b) plans until the end of the calendar year. Your final paycheck is your last chance to boost your contribution before the new year starts — and the more you can sock away in your tax-advantaged retirement plans, the more likely you are to end up richer over the long run, thanks to both tax savings and compound growth. Trending Now: Upskill Yourself Many wealthy individuals, including the sixth-richest person on Earth, Warren Buffett, say that the best investment you can ever make is in yourself. When you get your last paycheck — particularly if it includes a bonus — it can be a good time to spend that money on upskilling yourself. Consider using some of that money to enroll in educational courses or workshops that can either broaden your skill set or deepen it. By improving your marketability, your investment can significantly boost your lifelong earnings. Review Your Investments The end of the year is a traditional time for investors to review their portfolios. When you get your last paycheck, first verify that the correct amount is being deducted to your savings and investment accounts. Then, review your portfolio as a whole. It's likely that your asset allocation is out of balance if you haven't made any changes since last year. If you intend to have 70% in stocks and 30% in bonds, for example, by year-end you might find that balance may now be closer to 60/40, or even 50/50. To keep your portfolio with your intended risk and reward profile, you may have to make some year-end adjustments. Analyze Your Budget Once your final paycheck arrives, you'll finally have a full year's worth of income and expenses in the books. This is a great time to look back and analyze your budget. Were you able to live within your means? Did you save and invest as much as you intended? What changes should you make for the coming year to ensure that you remain under-budget and up your financial gain to get out of debt and boost your savings? All of this data is available once you wrap up the year with your final paycheck. Performing this type of financial analysis can help boost your net worth in the coming year. Save and/or Invest Your Bonus Many year-end paychecks come with an annual bonus. This offers you an excellent opportunity to boost your savings and investments without much effort at all. As your bonus is by definition 'extra' money, it won't feel like it comes out of your pocket if you simply divert it to your savings and investments. Many experts recommend investing all sources of 'found' or 'free' money, such as year-end bonuses or tax returns, as you aren't relying on them to fund your day-to-day budget. Doing this every year can really pad your retirement nest egg. Pay Off Debt Regardless of the time of year, one of the best ways to improve your financial life is to pay off your high-interest debt. Typically, this comes in the form of credit card debt, which can charge annual interest rates of 25% or more. Diverting some of your year-end paycheck and/or bonus towards your high-interest debt can get you out of a financial hole before you dig yourself in any deeper, and that's a key step in the quest to make yourself richer. More From GOBankingRates Mark Cuban Tells Americans To Stock Up on Consumables as Trump's Tariffs Hit -- Here's What To Buy This article originally appeared on 6 Ways To Make Yourself Richer With the Last Paycheck of the Year Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Forbes
2 days ago
- Business
- Forbes
How To Slash The Burdens Of IRA Required Minimum Distributions
Required minimum distributions from IRAs and 401(k)s can become a major tax burden during retirement, but you can reduce the burden. The percentage of the IRA that must be distributed as an RMD rises each year. That often means greater distributions and higher adjusted gross income, which can increase both taxable income and the Stealth Taxes imposed on many retirees. Shrewd retirees can turn the tables and change RMDs from burdens into opportunities. Consider these strategies to optimize your RMDs. (These strategies are for traditional IRAs and their original owners, not for Roth IRAs or inherited IRAs.) Determine the best time for the first RMD. The beginning age for RMDs changed several times in recent years from 72 for those born before 1951, 73 for those born from 1951 through 1959, and 75 for those born in 1960 or later. The current rule is the first RMD must be taken by April 1 of the year following the year you turn age 73. If you turned 73 in June 2025, you have until April 1, 2026, to take that first RMD. It is your 2025 RMD, even if you don't take it until early 2026. Most taxpayers should take the first RMD in the year they turn 73, which is 2025 in this example. If the first RMD is delayed, in 2026 you'll take that 2025 RMD plus the 2026 RMD. Taking two RMDs in one year could increase income taxes and Stealth Taxes. To calculate the 2025 RMD, use the IRA balance on December 31, 2024, whether you take the RMD in 2025 or 2026. Know the aggregation rules for multiple IRAs. Someone who owns more than one traditional IRA must first separately compute the RMD for each IRA. Then, the aggregation rules give choices. The IRAs can be treated separately, taking from each IRA a distribution at least equal to its RMD. Or all the RMDs can be added to determine the aggregate RMD, which can be withdrawn from the IRAs in any ratio. All the RMD can be taken from one IRA. Roughly equal amounts can be taken from each IRA. Unequal amounts can be taken from each IRA. The key is that by December 31 the total of the distributions from the traditional IRAs must at least equal the aggregate RMD. You can use the RMDs to rebalance your portfolio, draw down and eventually eliminate the smallest IRA, or meet other goals. Know when to aggregate and when not to. Be sure to include all traditional IRAs when calculating the aggregate RMD. For this purpose, IRAs include SEPs and SIMPLE IRAs. Balances of inherited IRAs and any employer plans, such as 401(k)s, are not included when computing the aggregate RMD. Their RMDs must be separately computed and taken from each account. Make charitable gifts with RMDs. Your RMD can be taken as a qualified charitable distribution, which would reduce taxable income. The QCD usually is the best way for those older than age 70½ to make charitable gifts. I discussed QCDs in detail in the past, so I won't review them again here. Consolidate or split IRAs. The tax law allows you to combine or split IRAs without tax consequences. It's best to make any changes with direct trustee-to-trustee rollovers instead of transferring the money yourself. Some people want multiple IRAs. They want each beneficiary to have a separate IRA, or the IRAs have different assets or strategies. Or you might want to keep money that was rolled over from a 401(k) separate from other IRA assets. (That used to be required by the tax code but no longer is.) An IRA owner might buy a qualified longevity annuity contract in an IRA, allowing RMDs on that portion of the IRA to be delayed to as late as age 85. Managing that might be easier when the QLAC is in a separate IRA. Other IRA owners prefer to consolidate IRAs. They believe multiple IRAs are more difficult to manage. They're also concerned the investment returns and distributions from separate IRAs might be different, so if each IRA has a different beneficiary the beneficiaries might not inherit the same amount. Distribute assets instead of cash. There's no need to sell assets to make the RMD in cash. RMDs can be made in property, known as an in-kind distribution. That keeps your asset allocation unchanged. For most IRAs, an in-kind distribution involves simply directing the custodian to transfer a certain number of shares of a fund or stock from the IRA to a taxable account. The value of the shares on the day of the distribution is the amount of the distribution. That value is the asset's new tax basis in the taxable account. In a future sale of the asset, you'll have a capital gain or loss based on the appreciation or depreciation after that day. An in-kind distribution can be especially profitable when an asset declined in price and you believe the decline is temporary. Distribute the depressed asset, and the value on that day will be taxed as ordinary income to you. When the price recovers, the appreciation will be a tax-advantaged long-term capital gain when you hold the asset for more than one year after the distribution. An in-kind distribution also is helpful when the IRA owns unconventional assets, such as real estate, mortgages, or a small business. It's hard to sell portions of such assets to make an RMD in cash. Instead, make an in-kind RMD by creating paperwork that transfers a percentage of the asset's ownership to your name. Decide the best time of year to take RMDs. You can take the RMD at any time during the year. Some people schedule equal monthly distributions, because they like the regular cash flow. Others take distributions early in the year to be sure the RMD requirement is met. Still others wait until the near end of the year. They want to maximize the IRA's tax-deferral of gains and income and delay paying estimated taxes on distributions. Take more than the RMD. The RMD is the minimum that must be distributed each year. You can distribute more. You might want to take a larger distribution when your income tax rate for the year will be lower than usual because of either higher deductions or lower income. That will reduce the RMD next year, when your tax rate might be higher. You also might want to distribute more than required in order to reduce future RMDs and the taxes that come along with them.
