Catherine Brock


It’s harder than you think.

Securing a livable income after you leave the workforce is no small task. Most of us have to save for decades, often with little insight into whether we’re doing enough.

If you’re not sure how your retirement prospects are shaping up, it’s time for a walk-through of what it really takes to earn the retirement income you need. Here’s a look at how an average senior can earn $60,000 a year after leaving the workforce. Use it as a model for shaping your own retirement savings plan.

Understanding your retirement income needs

Your retirement saving plan hinges on the income you need your savings account to produce. The challenge is that you may not have a good sense of what that income number is.

There are two reasons for this. First, inflation will increase your cost of living from what it is today. Depending on how far away retirement is, that increase could be significant. And second, the income you need from your savings will vary based on what you earn from Social Security.


Let’s tackle the inflation question first. Inflation has been running at about 2% annually in recent years. You can use a future inflation calculator to project how that 2% rate affects your living expenses over time. As an example, the average worker — let’s call him Bob — making $51,688 annually today will need $63,007 to cover his current lifestyle in 10 years.

Turning to Social Security, you can also estimate that fairly easily. Hop over to the Social Security website and search for the quick calculator. You’ll provide your birthdate and current income, and then select the option to see your benefit estimate in inflation-adjusted dollars.

Going back to our average worker Bob, let’s say he’s 60 years old. Using a 1960 birth year and a salary of $51,688, the quick calculator projects monthly benefits of $1,957 at the Full Retirement Age (FRA) of 67 or $2,724 at age 70. Those numbers equate to an annual income of $23,484 when Social Security is claimed at 67, or $32,688 if the benefit is taken at age 70. The $9,204 difference is due to delayed retirement credits, which increase the benefit for each month you delay your claim beyond your FRA. Delayed retirement credits stop accruing on your 70th birthday.

The table below shows the estimated income Bob requires from his savings to supplement Social Security and bring his combined annual earnings to $63,007.


Depending on when Bob retires, he needs $30,000 to $40,000 annually from his savings to maintain his current lifestyle. We can roughly translate those income numbers into savings targets with a multiplier of 25. That would allow Bob to withdraw 4% from his retirement account each year. Using that multiplier gets us to Bob’s targeted savings balance at retirement of about $750,000 to $1 million.

Reaching your target savings balance

If you’ve been making your own calculations along the way, you may have just realized your savings progress isn’t where you’d like it to be. Bob’s certainly isn’t. The average retirement savings for a 60-year-old worker is just short of $200,000. That puts average Bob at least $550,000 short of his goal, with only 10 years left to save.

To catch up in that period of time, Bob would have to save about $2,200 monthly in a tax-deferred investment account that grows at 7% after inflation. That’s pretty unrealistic for someone who makes $51,688 a year.

You can use a compound interest calculator to estimate the monthly contributions you’ll need to reach your target savings goal. Hopefully, your savings shortfall isn’t as extreme or you have more than 10 years available to make up the difference. If time is on your side, great. Don’t waste it. Start saving and investing as much as possible right now.

If you’re close to retirement but far from your savings target, you may need to redefine your lifestyle so you can cut back on expenses. Consider all of your options, even extreme ones like downsizing your home or moving in with your kids temporarily. Also, look for ways to increase your income. You want to free up as much cash as possible to fund that savings account. It may be worth it to work extra hours or take on more responsibility for higher pay — at least for a few years.

As you can see from our numbers above, delaying Social Security until your 70th birthday also makes a difference. That’s only an option, though, if your health allows you to keep working.

Don’t be casual about saving

Even a modest retirement income level of $60,000 a year is tough to generate if you’re casual about saving. The most reliable way to create the retirement you want is to get serious about padding that savings account today.

Author: Catherine Brock

Source: Fool: What It Really Takes to Generate $60,000 in Retirement Income Annually

Here’s how to work the Social Security rules to your advantage.

Maximizing your Social Security benefit from the get-go is a smart move to protect the longevity of your savings. After all, the more you collect from the feds, the less you have to pull from your retirement portfolio. Plus, starting from a higher base makes those percentage-based cost-of-living adjustments worth more to you over time.

Here are two income-boosting strategies to consider. Either can raise the average worker’s monthly benefit by more than $800.

1. Delay your Social Security application

The first thing to know is that you are eligible for your full Social Security benefit when you reach full retirement age (FRA), an age assigned to you based on your birth year. Filing for Social Security before FRA reduces your monthly benefit and filing later than FRA increases your monthly benefit.


Here’s how the reduction for filing early works. A reduction is applied to your full benefit based on how many months your filing precedes your FRA. If you file no more than 36 months prior to reaching FRA, your benefit is reduced by five-ninths of 1% for each month you’re early. For any months in excess of 36, the reduction is five-twelfths of 1% monthly.

Let’s put some numbers to that formula. Say you’re 50 today and your FRA is 67. You plan to claim at 62 — which is 60 months prior to your FRA. Your benefit reduction for the first 36 months is 20%, calculated as five-ninths of 1% multiplied by 36. You’d then add another 10% to that reduction for the remaining months, calculated as five-twelfths of 1% multiplied by 24. That’s a total benefit cut of 30%.

You can avoid the 30% cut simply by waiting until your FRA to claim Social Security benefits. But if you’re willing to delay your claim past your FRA, you qualify for delayed retirement credits — which can also be significant. For every month you postpone your claim beyond FRA, your benefit is increased by two-thirds of 1%. Those credits stop accumulating at age 70. So, if you’re 50 today with an FRA of 67, you could delay your claim by up to 36 months. That earns you a benefit increase of 24%.

Now, let’s translate those percentages into real numbers. The table below shows estimated benefits in today’s dollars at different claiming ages for a beneficiary who is 50 today. The benefits are calculated by Social Security’s quick calculator.


The righthand column shows the upside of delaying your Social Security claim from age 62 to age 70. If you’re earning $50,000 today, the eight-year postponement could increase your monthly income by more than $1,000.

2. Increase your income

You may not love the idea of putting off retirement until your 70th birthday. That’s understandable. Of course, you have the option to delay Social Security for a year or two in return for a smaller benefit increase. But you could also raise your benefit by increasing your income today.

Your Social Security benefit at FRA is based on your average inflation-adjusted monthly income during your highest-paid 35 years of working. If you are 50 today, you have more than a decade to increase that average by adding higher-income years to your work history. Each year of higher income earned going forward will replace a year of lower income in that 35-year calculation.

The potential increase to your benefit through higher income is not as fruitful as simply waiting — but why not find a middle ground by combining both strategies? For example, say you pick up a side job to increase your current income from $50,000 to $60,000 annually. That raises your benefit at 62 by an estimated $159 monthly. If you also waited until FRA to claim your benefit, the cumulative monthly increase goes up to $814. Plus, you’d then have the option to keep your secondary income after you leave your full-time role, which adds even more financial flexibility.

Be strategic about Social Security

Only you can decide when to file for Social Security. Delaying your claim benefits you financially, but not everyone wants to work until age 70. In that case, find opportunities to increase your wages now while you’re still working. That’ll help increase your Social Security benefit and, hopefully, give you the flexibility you need to retire as soon as it feels right.

Author: Catherine Brock

Source: Fool: 2 Ways to Increase Your Social Security Income by $814+ Monthly

Making money is one thing, but keeping it is another. Make sure you’re not taking on undue risk with these five asset allocation rules.

Thrill rides are for amusement parks, not financial portfolios. Even if you love a good dose of heart-pounding action, wild swings in your account balances aren’t the way to get it. When it comes to your wealth, keep things steady by following best practices for asset allocation.

Asset allocation is the diversification of your holdings across stocks, bonds, and cash. The goal is to balance the growth potential of stocks with the stability of bonds and cash for more predictable portfolio growth. There are many nuances to asset allocation, but we’re boiling them down here to the top five, must-know rules.

1. Adjust your stock holdings according to your timeline

When your investment timeline is short, market corrections are especially problematic — both emotionally and financially. Emotionally, your stress level spikes because you had plans to use that money and now some of it’s gone. You might even get spooked and sell. And financially, selling your stocks at the bottom of the market locks in your losses and puts you at risk of missing the recovery.

Adjusting your stock allocation according to your timeline helps you bypass those problems. For example:

  • You can go heavy on stocks if you’re under 50 and saving for retirement. Your timeline is long, and you can ride out any market turbulence.
  • As you reach your 50s, shoot for a blend of 60% stocks and 40% bonds. Adjust those numbers according to your risk tolerance. If risk makes you very nervous, for example, you’d decrease the stock percentage and increase the bond percentage.
  • Once you’re in retirement, you may prefer a more conservative allocation of 50% stocks and 50% bonds.
  • Again, adjust this based on your risk tolerance.
  • Any money you’ll need within the next five years should be held in cash or investment-grade bonds with varying maturity dates.
  • Keep your emergency fund entirely in cash. This is the ultimate in short investment timelines; you need this money available at a moment’s notice.

2. Your tolerance for risk is more important than your age

You may have heard of age-based asset allocation guidelines like the Rule of 100 and the Rule of 110. The Rule of 100 determines the percentage of stocks to hold by subtracting your age from 100. If you are 60, for example, the Rule of 100 advises you to hold 40% of your portfolio in stocks. The Rule of 110 works the same way, but you start with 110 instead of 100.

These rules attempt to define your asset allocation solely by your investment timeline. The thing is, timeline isn’t the only factor in play. Risk tolerance can be just as important. At the end of the day, diversifying your asset classes should provide you with peace of mind. If you’re 65 and seasoned enough to stay cool through market cycles, go ahead and hold more stocks. If you’re 25 and every market correction strikes fear into your heart, go with a 50/50 split between stocks and bonds. You won’t have the highest returns on the block, but you will sleep better at night.

3. Market conditions never dictate your allocation strategy

When times are good, it’s tempting to believe the stock market will continue to rise indefinitely. And that belief may encourage you to chase higher profits by holding more stocks. This is a mistake. You follow an asset allocation strategy precisely because you can’t time the market and you don’t know when a correction is coming. If you let market conditions influence your allocation strategy, you’re really not following a strategy at all.

4. Diversify within asset classes

Diversifying across stocks, bonds, and cash is important, but you should also diversify within these asset classes. Here are some ways to do that:

  • Stocks: Hold 20 or more individual stocks or invest in mutual funds. You can diversify your stock holdings by individual company and by sector. Utility companies, consumer staples, and healthcare companies tend to be more stable, while the technology and financial sectors are more reactive to economic cycles. Mutual funds are already diversified, which makes them a nice option when you are working with smaller dollar amounts.
  • Bonds: You can diversify your bond holdings with bond funds. Or, you can vary your holdings across bond maturities, sectors, and types — primarily municipal, corporate, and government.
  • Cash: Cash doesn’t lose value the way a stock or bond can, so diversification isn’t a priority. If you have lots of cash, you might hold it in separate banks so all of it is FDIC-insured. The FDIC limit is $250,000 per depositor, per bank. But most people aren’t sitting on that much cash. More realistically, you might diversify your cash to maximize your liquidity and interest earnings. For example, you could hold some cash in a liquid savings account and the rest in a less liquid CD with a higher interest rate.

5. Target-date funds manage allocation for you (sort of)

If you’re nodding off just reading about asset allocation, there is another option. You could invest in a target-date fund, which manages asset allocation for you. A target-date fund is a mutual fund that holds different asset classes and gradually moves to a more conservative allocation as the target date approaches. The target date is referenced in the fund’s name and refers to the year you plan to retire. A 2055 fund, for example, is built for folks who plan to retire in 2055.

Target-date funds do follow most of our must-know rules. They’re diversified across and between asset classes, and the allocation is based on investment timeline. These funds are also simple to manage. You don’t have to rebalance your portfolio or even hold any other assets, besides your emergency fund cash.

But there are drawbacks. Target-date funds don’t address your personal risk tolerance or the possibility that your circumstances may change. You might get a big promotion that enables you to retire five years earlier, for example. In that case, you’d want to review the allocations in your fund and decide if they still make sense for you.

Make your own rules, too

No single approach to asset allocation addresses every situation perfectly. Lean on your risk tolerance and your investment timeline to land on an approach that works for you. Or, you can wing it — but make sure your seat belt is buckled, because it might be a wild ride.

Author: Catherine Brock

Source: Fool: 5 Asset Allocation Rules You Should Know by Heart

Get to the answer with these four questions.

Unless you watch reruns of The Apprentice, you probably don’t expect to hear “You’re fired!” anytime soon. Nor might you expect your roof to start leaking, or a water pipe to burst beneath your kitchen floor. But these emergencies happen, and sometimes all at once.

The surest way to manage through a financial challenge is to plan ahead. Commonly, that contingency plan involves having an emergency fund in cash to use when things go sideways. It’s a sensible approach, certainly. You can dip into your safety net to cover your living expenses while you find a new job, or pay for those pricey home repairs. After your situation stabilizes, you can refill the coffers so you’re ready for the next whammy.

Cash savings underperform

That sounds very adult-like and sensible — except for one thing. While you’re waiting for bad stuff to happen, your cash balance is sitting in your high-rate savings account underperforming. In a year when the S&P 500 is up over 25%, it’s tough to accept a measly 2% return on the $10,000 or $20,000 you have stashed away for a rainy day.

The purpose of keeping emergency savings in cash is obvious: You want it to be available when you need it. The market could crash the same day you get fired, after all. And if your emergency fund were invested in the market, you’d have to sell at a loss to make the cash you need available. For many, that’s not a risk worth taking.

But you may have a different outlook. Maybe you could invest your emergency fund and maximize those earnings, without destroying your chances of surviving an unexpected financial challenge?

Here are five questions you can ask yourself to find out. The more times you answer “yes,” the less reliant you are on having that big balance in cash.

1. Is your job stable?

Unexpected loss of income is one of the main challenges an emergency fund is intended to address. But it’s not a risk every worker faces. Your chances of getting fired without severance are low when all of these factors are true:

You work for a large company that must document performance-based firings.
Your performance reviews say you’re rock-solid.
You’re not doing anything shady or intentionally violating company policy.
Your company doesn’t have a history of eliminating jobs at your level.

Consider how these factors apply to your situation. Maybe you’re an office rock star who follows the rules, but you do work for a small company that has historically pushed out older workers. If you have marketable skills, a severance package might be all you need to get by until you find your next opportunity.

You may also be able to rely on unemployment benefits in the short-term. The benefit amount and eligibility requirements vary by state, but generally, you qualify if you’re fired without cause and you meet your state’s minimum time worked requirement. Research the rules in your state and verify that your employer is paying the required unemployment taxes.

2. Could you easily lower your monthly spending?

When your required living expenses are low relative to your income, you have a built-in cushion against financial emergencies. Could you easily cut back on lifestyle and entertainment spending to free up cash? If your job is stable and the answer is yes, you’re less likely to need a fast source of cash.

In the spirit of knowing what kind of risk you’re taking, should you invest your emergency fund, add up your required monthly bills. The total is your baseline living expenses and the amount you need to cover each month if you lose your job.

3. Do you have access to cheap sources of cash?

Even if your emergency fund is invested, your first option when you need cash is to liquidate those investments. But if it’s bad timing to sell some of your portfolio, you could borrow temporarily to bridge the gap. In a pinch, a personal or home equity line of credit could stand in as a cash source. The rates on these are generally much lower than even the best credit cards.

Your cheap source of cash should be large enough to cover your baseline living expenses for a few months. It’s also wise to confirm the deductibles on your auto and home policies. If you do face the perfect storm — losing your job and wrecking your car in the same week — you’ll need cash to cover your deductible as well as your living expenses. Be aware of your health insurance deductible as well, because if you need emergency surgery, your health insurance might not cover costs until you’ve met your annual deductible.

4. Do you have a high tolerance for risk?

Investing your emergency fund is an aggressive strategy. Sure, there’s upside, but a lot could go wrong too. The stress of dealing with a volatile market in the short term, plus the cost of some unexpected catastrophe, might be overwhelming.

In a single year when the market is really strong, the difference between holding $15,000 in cash and investing it might be about $2,000. That assumes a savings-account interest rate of 2% and investment growth of 15%. But you could just as easily lose $2,000 if the market takes a dip. It’s up to you to decide whether or not that risk is worth it.

The middle ground

You could also take the middle ground, by splitting up your emergency fund between cash and investments. And, the money you do invest should go into exchange-traded assets that you can sell on the fly. Exchange-traded funds (ETFs) that invest in large-cap, domestic companies are a good option, because these are diversified and fairly liquid. Don’t invest your emergency fund in real estate, your cousin’s body shop business, or any financial instrument you can’t sell at a moment’s notice.

Experts recommend you keep enough money in your emergency fund to cover three to six months of living expenses. If that’s your goal, try holding, say, two months’ worth in cash and four months’ worth in your brokerage account. Then you’ll have cash, some investments, and cheap debt sources to keep you afloat in case your boss decides to play Donald Trump and tell you: “You’re fired!”

Author: Catherine Brock

Source: Fool: Should You Invest Your Emergency Fund?

In Austin Powers: International Man of Mystery, Dr. Evil famously tries to hold the world hostage for a ransom of $1 million. And if you asked most Americans what they’d need to retire comfortably, you might get the very same number — at least according to TD Ameritrade’s 2019 Retirement Pulse Survey.

The survey polled adults aged 23 and older with investable assets of $10,000 or more. Respondents were asked about their progress on retirement savings, their willingness to cut expenses to save more, and whether $1 million would be enough for a comfortable retirement. To the last question, six of 10 respondents across all age groups said yes.

Nearly 90% of those polled also said they’d be willing to make trade-offs today to catch up on their retirement savings. Some of those trade-offs included packing lunch instead of buying it, making coffee at home, and downsizing housing expenses. But are those tweaks enough to ratchet up your savings to seven figures over time?

The answer depends on how much you’ve saved so far, and how much time you have between now and retirement. An analysis by Fidelity calculates the average 401(k) balance at $103,700 and the average IRA balance at $107,100. Using $100,000 as a starting point, then, let’s look at three scenarios that can take you to $1 million in savings. All three assume a 7% return on your invested funds.

10 years to $1 million

You’re in your 50s and you love the idea of retiring in 10 years. But in the past, you haven’t focused enough on saving. Now you’re wondering if it’s even possible to grow your nest egg to $1 million. In truth, saving $900,000 in a single decade is tricky. Since the Internal Revenue Service limits how much you can contribute to your 401(k) and IRA accounts every year, you can’t amass this sum with retirement account contributions alone.

The 2019 contribution limits on 401(k)s and IRAs total a combined $25,000, or $32,000 if you’re 50 or older. If you make those maximum contributions as monthly deposits of $2,083 for 10 years, your nest egg only grows to $563,604.

Contribution limits will go up over time, so this number is fairly conservative. Even so, to get to $1 million, you’ll have to save additional amounts in a taxable brokerage account that doesn’t allow for tax-free growth. And you should account for those income taxes in your planning. Assuming 25% in federal, state, and local taxes, you’d have to stash $2,718 monthly in your taxable accounts — on top of the $2,083 you’re saving in your tax-advantaged accounts to achieve the $1 million target in 10 years.

The table below shows your savings breakdown to get from $100,000 to $1 million in savings in 10 years. You’ll max out our 401(k) and IRA contributions and then save an additional $2,718 per month in a separate, taxable brokerage account.

20 years to $1 million

The 20-year roadmap to $1 million is much cleaner. You can get the job done with 401(k) contributions alone, to the tune of $1,138 monthly.

Notably, when you have 20 years on your side, you only have to save $373,120 in total. The other $600,000-plus comes from the earnings on your investments.

30 years to $1 million

Finally, retirement looks simple when you have $100,000 and 30 years to save. Believe it or not, you can turn that $100,000 into $1 million by tucking away a measly $154 monthly in your retirement plan. You really could make that happen by packing your work lunch instead of eating out. And since $154 monthly is well within the limits of allowed contributions, that money grows tax-free for decades. As Austin Powers would say, “Yeah, baby.”

Next steps for savers

Realistically, you might not have decades to save or have a $100,000 balance today. The monthly savings targets shown above might also feel out of reach. Even so, the core takeaways from the scenarios above still apply:

  • Don’t put off saving. The longer you keep your money invested, the more you earn. Save smaller amounts today if that’s all you can handle, and gradually build up your contributions as your income grows.
  • Make sure your 401(k) and IRA contributions are being invested. If you don’t pick investment choices in your 401(k), your cash usually gets invested in money market funds by default. A good money market fund earns 2%. And that’s not enough to get you to $1 million. Our three scenarios above assume a 7% return. While the stock market can be volatile year to year, 7% is considered by Warren Buffet and other savvy investors as a realistic, inflation-adjusted earnings target for longer-term investing. One year, like 2019, might show growth in the S&P 500 of 25%. That growth offsets other years, like 2008, when the market is down. Inflation averages to about 3% annually.
  • The tax advantages of your 401(k) and IRA can be significant over time. Max out your contributions in those accounts before stashing any long-term savings elsewhere.
  • Take full advantage of any employer-match contribution available to you and plan on staying with your job until you are fully vested. Your employer contributions count toward your monthly savings goal, which means you don’t have to save as much out of your pocket.

Without the option of cryogenically freezing yourself in the style of Dr. Evil, the path to $1 million might not be clear to you today. But tomorrow is another story because your income is likely to evolve over time. Just keep saving now to give yourself a head start to that $1 million milestone.

Author: Catherine Brock

Source: Fool: 3 Ways to Get From $100,000 to $1 Million in Retirement Savings

Making high-dollar contributions to your 401(k) can cost you.

The advice, “Go big or go home,” can apply to many situations in life, but it’s not always the right strategy for your 401(k) contributions.

Cutting back on retirement savings seems counterintuitive, especially as the U.S. faces a retirement crisis. A recent analysis by The New School’s Schwartz Center for Economic Policy Analysis concludes that two of five older workers and their spouses will experience a lifestyle decline in retirement. Specifically, if workers who are currently in their 50s retire at age 62, some 8.5 million people will fall below the federal poverty level. That means their incomes will be less than $23,340 for singles and $31,260 for couples. And the cause of this income decline is — you guessed it — inadequate retirement savings.

The maximum you can contribute to your 401(k) in 2019 is $19,000, or $25,000 if you’re aged 50 or older. If you keep up with those contributions for 20 years and earn a 7% return, you’ll have stored up about $836,000. And that seems pretty adequate, at least as a starting point.

So, how can saving $19,000 a year be a bad thing? Well, in certain scenarios, making those maximum contributions can cost you in other ways. Here are four of them.

1. If you max out too fast, you could miss out on company-match contributions

Many 401(k) plans have a company-match provision, meaning your employer also contributes to your retirement plan based on your own saving activities. You get these free deposits by making your own contributions to the account. Typically, the employer will “match” your contributions dollar for dollar, up to a certain percentage of your salary.

The timing of your company’s matching contribution is important, however. Say you make $100,000 annually and your company match is capped at 3% or $3,000. Your employer matches your contributions paycheck by paycheck. You want to max out your own contributions at $19,000 as allowed by the IRS and get your full company match of $3,000. It’s a great plan.

But, if you hit your $19,000 target in November, your final paychecks of the year won’t have any further contributions from you. As a result, you won’t get your company-match contributions either, meaning you’ll fall short of the full $3,000 of matching funds you were eligible for.

Fix this by making sure you don’t reach $19,000 in contributions before your final paycheck. You’ll need a contribution of at least 3% in that last check to get your full company match.

2. If you have pre-retirement financial goals, you may not have cash available

If you need to put your kids through college, launch a new business, buy a house, or help your parents get settled into their retirement, you may regret locking up your excess funds in that 401(k). Early withdrawals generally result in a 10% penalty. Usually, you have to be 55 years old and retired, or 59-1/2 years old to access your funds. Even if you’re 59-1/2 or older and still working, your plan may still prohibit you from taking withdrawals.

Try setting up automatic deposits into a separate investment account to save for your other financial goals.

3. If you have high-interest debt, you’ll incur excess interest expense

Debt is expensive. The national average APR on a credit card is 16.92%. At that interest rate, a $10,000 balance costs you about $139 a month in interest. The faster you pay off that debt, the sooner you get rid of the $139 monthly expense. It makes sense to do this before you contribute hefty amounts to your 401(k).

You may like the 401(k) contributions because the money gets taken out of your paycheck — which means you can’t spend it. That’s understandable. Try mimicking that system with automatic deposits to a savings account occurring on your paydays. Then use the savings balance to pay down your credit card debt until it’s gone.

4. If your 401(k) plan is a dud, you have better options

Sadly, some 401(k) plans don’t have great investment options. You should have your pick of 10 or so mutual funds that each represent different levels of risk. If your plan offers only three investment choices, and one is company stock, you may be better off investing some of your money elsewhere. The same holds true if your plan is charging fees in excess of 1% of your account balance. For details on your fees, check your plan summary.

If your 401(k) plan is a dud, consider contributing some of that cash an IRA to supplement your retirement savings. You have two personal retirement plan options: a traditional IRA or a Roth IRA. Contributions to a traditional IRA give you a tax break today, but then you pay taxes when you withdraw the funds in retirement. Roth IRA contributions don’t lessen your tax burden in the current year, but your retirement withdrawals will be tax-free. Traditional and Roth IRAs generally offer broad investment options and have low fees, usually less than 0.5% of your assets annually. The maximum contribution to a traditional or Roth IRA is $6,000 annually for 2019.

Diversify your savings

It’s awesome that you have available cash to send to your 401(k). But going big and maxing out those contributions isn’t always the right financial move. Keep saving, of course, but diversify to get the most from your company match, add liquidity, pay off debt, or compensate for an expensive or limited 401(k) plan.

Author: Catherine Brock

Source: Fool: 4 Reasons You Shouldn’t Max Out Your 401(k)

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