The AAII Personal Finance library was developed by the editors at the American Association of Individual Investors. It is designed to serve as a starting point for anyone interested in learning to become a better and more profitable investor. This library is open to the public and covers the following investing topics: portfolio management, personal finance, stocks, bonds and mutual funds.
With the oldest baby boomers hitting 62 this year, and more than 70 million of them likely to enter retirement over the next 20 years, the hard truth is that only a small minority are accumulating enough savings to provide for their income needs during decades in retirement.
This uncomfortable reality is particularly true given the overall rise in life expectancy, sharply rising medical costs, the trend toward more active and costly retirement lifestyles, and, not least, the relentless toll of inflation.
For the financially fortunate with sufficient personal savings, Social Security benefits, and corporate pensions to meet all their retirement income needs, the main financial challenges of retirement are how to invest and spend wisely and perhaps provide for their heirs as well.
However, more than 75% of all workers age 55 or older report having less than $250,000 in investments apart from their homes and pensions, according to a recent survey by the Employee Benefit Research Institute (EBRI). At a recommended initial withdrawal amount of 4%, that provides an income from their investments of just $10,000 in the first year of retirement. Nevertheless, those approaching retirement can improve their income and financial security in retirement depending on their flexibility and their approach to four big decisions that are usually under their control:
Generally, no single decision will improve pre-retirees’ potential retirement security as much as continuing to work even a few more years beyond the anticipated retirement date.
Prior to January 1, 2010, only taxpayers who met certain income requirements were allowed to convert funds in a tax-deferred account (e.g., traditional IRA, 401(k), 403(b), 457, SEP-IRA) into a Roth IRA. Now this restriction has been removed. Since you will still have to report the converted funds as income and pay the associated taxes, you need to consider whether converting funds to a Roth IRA is beneficial for your particular financial situation.
There are several factors that could influence your decision to convert funds.
Bernie Madoff is now behind bars. But the uncovering of his enormous and long-running Ponzi scheme, and the fraud committed by several other financial hucksters, highlight the importance of asking the right questions and doing your own due diligence before selecting an advisor or participating in an investment.
What areas should you focus on when performing a due diligence review?
Here are 10 basic steps all investors can take—as well as certain indicators that should serve as red flag warning signs of the potential for trouble down the road.
Retirement planning requires a clear-eyed analysis of future needs and income. Yet many individuals view retirement through rose-colored glasses.
Here are some of the most common myths and how you can bring reality into focus.
With tuition costs rising every year, saving for college is a top priority for most families with children. A 529 savings plan, also called a qualified tuition program, allows you to build up savings to pay for qualified higher education at eligible institutions using tax-free dollars. 529 plans were named after a section of the tax code and are offered through states.
There are three types of 529 plans: traditional savings plans, prepaid tuition plans, and independent plans.
Socially responsible investments have attracted much money, many investors, and many studies. We have studies of socially responsible mutual funds, socially responsible indexes, “sin” stocks, stocks with good and bad environmental records, and stocks with good and bad employee relations. But some parts of our knowledge are inconsistent with other parts and some gaps in our knowledge remain.
Treasury bills and other cash investments have the advantage of liquidity and little downside risk, but they offer no real long-term growth, and typically the income is the lowest among fixed-income alternatives.
Fortunately, you don’t need a Ph.D. in investment theory to benefit from the implications of MPT. In fact, the general concepts can guide you in better managing your own 401(k) portfolio. Just what is MPT?
10 axioms of effective investing provide the critical cornerstone for guiding investment philosophy and making decisions. This will ensure that you meet the universal goal of creating financial wealth for retirement.