Antonia, 27, wants to retire in 15 years. She’s trying to figure out whether to contribute to pre-tax or after-tax retirement accounts.
Most financial advice for 20-somethings that she’s encountered says to contribute to after-tax (Roth) retirement accounts. These articles assume that a 27-year-old will continue earning money for the next 30+ years, presumably escalating into higher tax brackets along the way.
By paying taxes upfront, these articles say, you’ll enjoy 30+ years of compounding gains, which you’ll be able to withdraw tax-exempt.
But what if, like Antonia, you’re only 15 years from retirement? Should you stick with Roth tax treatment? Or is there wisdom in making retirement contributions with pre-tax money?
Marisa is young, high-income, and highly risk-tolerant. She’d like to know: what asset allocation would I suggest for a young, risk-tolerant person? And is rebalancing her portfolio necessary, or just a distraction?
Dylan owns his home outright. When he sells it, he’ll collect about $100,000 after fees. He also has an additional $100,000 saved in cash.
He’d like to buy a home free-and-clear. What’s the best way to approach this? Should he take out a home equity line of credit? A bridge loan? Something else?
Pal lives in the San Francisco Bay Area. He recently bought his first rental property, and he’s interested in building passive income and reach financial independence.
He’s curious about credit card piggybacking, a side hustle by which a person with a high credit score adds another person with a low credit score as an authorized user to their card.
It seems like a legitimate way to earn extra money. Why aren’t more people talking about this? Is there a problem he’s overlooking?
Anonymous, 24, says she knows next-to-nothing about investing. She has $6,500 in her Roth IRA, invested in a Washington Mutual Class A mutual fund, which is an actively-managed mutual fund with a front load.
Should she keep her money there? Or should she move it?
Her second question is about her 401k. She contributes 5 percent of her paycheck into a Roth 401k account, from which she invests in a Target Date retirement fund. Her employer doesn’t match any contributions.
Her total contributions to both accounts (her Roth 401k and Roth IRA) equal $5,500 per year.
Should she stop contributing to her Roth 401k, so that she can focus her contributions on her Roth IRA?
Jeff and his wife are both 64. When he reads about retirement, the information is ambiguous about Social Security.
Let’s say that he has $1 million saved towards retirement, which generates $40,000 annually at the 4 percent rule of thumb. Let’s also say that he is eligible for Social Security income of $40,000 per year. Doesn’t this mean he could retire on $80,000 per year? If so, then why do “4 percent rule” projections only talk about the portfolio portion?
Former financial advisor Joe Saul-Sehy and I discuss these questions on today’s episode. Enjoy!
Resources Mentioned:
- Morningstar.com
- 7 Habits of Highly Effective People, by Stephen Covey
- Darrow Kirkpatrick’s review of online calculators
Thanks to our sponsors!
Grove Collaborative makes it easy to discover amazing natural home and personal care products. Grove selects only the best non-toxic products, so you can shop with confidence knowing that everything on their site is good for you, your family, and the planet. To try them out, head to grove.co/afford, sign up, and with a purchase of $20 or more you’ll receive a free $30 Mrs. Meyer’s kit + a bonus gift!
The average national interest rate on a savings account is 0.07%. Would you like to earn more on your savings while investing in local communities? CNote is a socially-conscious savings alternative that pays you up to 35x the national average. Check them out at mycnote.com/paula!
ZipRecruiter learns what you’re looking for, identifies people with the right experience, and invites them to apply to your job. In fact, 80% of employers who post a job on ZipRecruiter get a quality candidate through the site in just one day. Give it a try and post your job listing for free by going to ZipRecruiter.com/Afford.
Do you want your money to make more money? Then check out Radius Bank’s free high-interest checking account. You earn 0.85% APY on balances of $2,500 and up – 12x the national average of 0.04% APY! To get started, head over to radiusbank.com/paula!
