Latest news with #IBonds
Yahoo
13 hours ago
- Business
- Yahoo
5 Things You Need To Know About Inflation If You Ever Want To Retire
Inflation can quietly erode retirement savings, diminishing the future purchasing power of money saved today. As prices rise, it becomes increasingly important to build a retirement plan that accounts for higher living costs over time. Trending Now: Read More: Here are five things you need to know about inflation if you ever want to retire. Inflation doesn't just raise prices. It reshapes the entire financial landscape, from daily spending to retirement income. 'Inflation can unravel much like a domino effect,' said Daniel Gleich, CEO and president of Madison Trust Company. 'A change in our economic landscape will likely trickle down into a variety of aspects typically pertaining to our day-to-day lives.' Gleich said that fixed sources, such as pensions, may lose purchasing power, and even market-based investments can experience downturns when inflation ripples through the economy. 'Equally, anyone who participates in publicly-traded products like stocks, bonds and mutual funds might endure a significant dip in their retirement investments,' Gleich said. 'The stock market and our economy's theme are generally correlated.' Be Aware: While it's important to keep some cash for emergencies or near-term expenses, too much sitting in low-yield accounts can quietly lose value in a high-inflation environment. 'Many retirees feel secure keeping large sums of cash or equivalents (money markets, CDs),' said Chad Gammon, a certified financial planner (CFP) and owner of Custom Fit Financial. 'That is fine to do for a period of time, but sometimes retirees have a decades' worth of cash, and it won't keep up with inflation and could impact their retirement.' In a high-inflation environment, it's essential to park money in places that help maintain purchasing power. Treasury Inflation-Protected Securities (TIPS) and I Bonds are specifically designed to rise with inflation, making them strong tools for long-term value preservation. For shorter time horizons or emergency savings, high-yield savings accounts and certificates of deposit (CDs) can also play a role. 'You can prioritize safe, guaranteed investments like CDs and high-yield savings accounts to earn interest and fight inflation,' said Cetin Duransoy, U.S. CEO at Raisin. 'Even modest amounts can grow meaningfully over time when placed in competitive, insured savings products, and that kind of consistency is key in a high-cost environment.' While they don't adjust with inflation directly, the stable, guaranteed returns of CDs and high-yield savings accounts, especially in a high-rate environment, can help offset rising costs and keep cash from losing value too quickly. Healthcare expenses often rise faster than overall inflation, and they typically increase as people age. According to the latest Fidelity Retiree Health Care cost estimate, the average 65-year-old couple retiring today can expect to spend around $330,000 (after tax) on healthcare costs throughout retirement, not including long-term care. Retirement plans that don't account for escalating medical costs risk underestimating one of the biggest long-term expenses, especially in the final decades of life. 'If eligible, you may want to look into contributing to a health savings account (HSA),' Gleich said. 'One of the most prevalent mistakes retirement savers may make is to only save for a set number of years. 'None of us can predict the future, and the average lifespan is only continuing to increase. Some may save for 15 or 20 years but then need funds for another five to ten. All in all: The more you save, the better off you'll likely be.' Alternative investments, such as real estate and precious metals, can help protect a retirement portfolio during periods of inflation. 'These assets typically remain valuable, or increase in value, in times of inflation,' Gleich said. 'Furthermore, physical, tangible assets — like real estate and precious metals — are likely to never reach a zero-dollar value. Both land and precious metals like gold and silver hold historical reverence, along with a track record of persisting throughout centuries of monetary unpredictability.' More From GOBankingRates Mark Cuban Warns of 'Red Rural Recession' -- 4 States That Could Get Hit Hard 6 Hybrid Vehicles To Stay Away From in Retirement The 5 Car Brands Named the Least Reliable of 2025 This article originally appeared on 5 Things You Need To Know About Inflation If You Ever Want To Retire Sign in to access your portfolio
Yahoo
06-04-2025
- Business
- Yahoo
What is tax-deferring and how do billionaires benefit from it?
(NewsNation) — Most billionaires keep their wealth in company shares. When these shares increase in value, so does their net worth — but this increase isn't taxable until the shares are sold at a profit. Their solution? Simply never sell. Instead of selling shares to access cash, billionaires often borrow against their existing assets to purchase more shares. This strategy increases their wealth without triggering taxable events. Tax calculator: How much do I owe in taxes? In 2007 and 2011, Amazon founder Jeff Bezos paid nothing in federal income taxes. Tesla CEO Elon Musk, the second-richest person globally, managed the same feat in 2018. Investor George Soros once went three consecutive years without paying federal income tax, Bezinga reported. These examples show how billionaires employ sophisticated tax strategies that often leave them paying less than the average American worker. The IRS launched a crackdown on the super-wealthy in early 2024, armed with billions in new funding from Congress. The initiative comes after a decade that saw audits of taxpayers earning over $1 million drop by more than 80%, despite this income bracket growing by 50%, CNBC reported. How much do you need to earn to file taxes? Tax deferral allows investors to delay paying taxes on investment gains until a later date. This strategy enables earnings to be reinvested and compounded over time, potentially offering stronger long-term growth than taxable accounts, per Ameritas. The Rule of 72 shows this advantage: divide 72 by your rate of return to estimate how many years it will take to double money in a tax-deferred account. For taxable accounts, the Rule of 96 applies, accounting for the drag of annual taxation. What do you need to file your taxes? Several investment vehicles offer tax-deferred benefits, according to Bankrate: Traditional IRAs: Tax-advantaged retirement accounts where contributions may be tax-deductible and growth is tax-deferred until withdrawal Employer-sponsored plans: 401(k)s and 403(b)s often include employer matching contributions Fixed deferred annuities: Insurance-based contracts with guaranteed interest rates Variable annuities: Tied to investments with potential for growth but subject to market risks Government bonds: I Bonds and EE Bonds offer low-risk options with tax deferral benefits Whole life insurance: Provides tax-free benefits for beneficiaries and cash-saving components Consider this comparison: A single tax-deferred investment earning 8% annual interest over 30 years grows to more than $750,000. After paying 28% in taxes upon withdrawal, the investor receives approximately $560,000, per Ameritas. 7 key tax terms you should know In contrast, a similar investment in a taxable account, with 28% paid in taxes annually, yields only about $400,000 over the same period — a difference of roughly $160,000. Tax-deferred accounts come with significant restrictions, per Bankrate: : 401(k) contributions are capped at $23,500 annually ($31,000 for those 50 and older), while IRAs are limited to $7,000 ($8,000 for those 50 and older) Early withdrawal penalties: The IRS imposes a 10% penalty on funds withdrawn before age 59½, plus regular income tax on the amount Required minimum distributions: Starting at age 73, account holders must begin taking distributions from retirement accounts or face substantial penalties Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
