Should You ALWAYS Invest In Your 401(k)?

A reader question pushed me to look at 401(k) investing in a completely new way. This reader asked me:

Hey Jesse – The problem with 401(k) accounts is that they “lock up” your money until you’re 60.

But “normal” taxable brokerage accounts keep your money “free” to use as you see fit.

What are your thoughts? Should you always utilize/maximize your 401(k)?

Great Question!

This is a great question. The personal finance community loves to push 401(k) accounts. As I’ve written before, I maximize my 401(k).

But as our questioner points out, we pay a cost when we use our 401(k). Namely, we “lock up” our money until we retire. However, we should be aware that there are many ways to access 401(k) money early (e.g. a Roth conversion ladder). But that’s another article for another day…

This “lock up” is good from a behavioral point of view. It encourages us to only use that money for retirement.

But you and I are responsible and financially savvy. Do we need to “lock up” our dollars in a 401(k)? If we use a “normal” taxable brokerage account instead, we could withdraw our money at any time. This is especially important for:

  • Early retirees. It’s hard to retire at 45 if all your retirement money is in a 401(k). Though, Roth conversion ladders can help with this.
  • Changes of plans. At age 22, I exclaimed, “I’m going to put this money away for the next 37 years!!!” That’s a long time. My plans might change.
  • Over-saving. You saved $3 million for retirement but you only need $2 million. It sure would be nice if that extra $1 million was in a flexible brokerage account.

All that said, there are subjective pros and cons to both accounts.

Let’s Look at the Numbers

But what are the objective differences?

I’m going to approach this question in two unique ways.

  • Scenario 1: 401(k) Employer Match vs. Using a Brokerage Account
  • Scenario 2: Maxing a 401(k) vs. Using a Brokerage Account

The first scenario will ask, “How much benefit do we get from a 401(k) employer match? How much better is that match than a taxable brokerage?”

And the second scenario will ask, “How much benefit do we get from maxing out our 401(k)? How does it compare to a taxable brokerage?”

Scenario 1: 401(k) Employer Match vs. Using a Brokerage Account

Every financial expert always says, “You MUST get your 401(k) employer match. It’s FREE money.”

I’ve always taken this advice at face value. And yes, I’ve always given this advice to others.

But what do the numbers actually tell us?

Let’s look at Mike, who gets his match, and Tom, who only uses a taxable brokerage account. Mike  = match. Tom = taxed.

Mike gets his match. If you’re into the details, here are Mike’s numbers:

  • Mike contributes $6,000 per year, pre-tax
  • Mike’s employer matches 50% – another $3,000 pre-tax
  • Using current income tax brackets as a basis, we assume Mike’s future overall Federal income tax rate will be 13.6%. This assumes $80,000 of annual withdrawals at current Federal income tax rates, with no other income. (see spreadsheet for details)

Tom uses a taxable brokerage. His details are:

  • Tom contributes $6,000 pre-tax too, but pays income tax up front at a 22% marginal rate. His contribution is $4680.
  • Tom does not get an employer match.
  • Using current capital gains tax brackets, we assume Tom will pay a future rate of 7.5%. This assumes $80,000 of annual withdrawals at current Federal capital gains tax rates, with no other income (see spreadsheet for details)

Both Mike and Tom invest in a total market index fund that achieves:

  • Capital growth of 5%
  • Dividend growth of 2% – on which Tom has to pay a 15% tax in his taxable account.

The Results…

After 30 years and accounting for all taxes, Mike will have $786,000 vs. Tom’s $413,000.

That’s a 90% difference in total value. Or, you could say that Mike’s portfolio compounded 2.16% annually more than Tom’s.

Is it worth “locking up” your money for that difference?

For 99% of you reading this – absolutely. An extra 2.16% per year is significant. This result is why all the experts say, “Get your employer match!”

What About Other Employer Match Percentages?

Mike’s employer matched 50% of his contributions. What if they matched 100%? What if they only matched 25%?

With a 100% match, Mike would have ended up with $1.05 million. That’s 153% more than Tom, or an annual growth rate 3.15% greater than Tom

With a 25% match, Mike would have ended up with $655,000. That’s 58% more than Tom, or an annual growth rate of 1.55% greater than Tom.

After Scenario 2, we’ll discuss that this is still pretty damn good!

Scenario 2: Maxing Out a 401(k) vs. Using a Brokerage Account

What if Mike continues to invest in his 401(k) to the full extent? He’ll get a tax advantage up front, but he’ll no longer benefit from an employer match.

Will Mike continue to vastly outperform Tom?

  • Mike contributes another $14,000 pre-tax
  • There is no employer match on this money
  • We again assume Mike’s future overall Federal income tax rate will be 13.6% (see spreadsheet for details)

While Tom continues to plow money into his taxable brokerage…

  • Tom contributes $14,000 pre-tax too, but pays income tax up front at a 22% marginal rate. His contribution is $10920.
  • Tom does not get an employer match.
  • We again assume Tom will pay a future rate of 7.5% (see spreadsheet for details)

Again, both Mike and Tom invest in a total market index fund that achieves:

  • Capital growth of 5%
  • Dividend growth of 2% – on which Tom has to pay a 15% tax in his taxable brokerage account.

The Results…

After 30 years and accounting for all taxes, Mike will have $1.22 million vs. Tom’s account of $965,000

This is a 27% difference in total value. Or, you could say that Mike’s portfolio compounded 0.79% annually more than Tom’s.

We’ve got to ask:

Is it worthwhile to “lock up” your money for 30 years to achieve a 0.79% annual difference?

This is where the subject gets murky.

Murky Reason #1: 30 years is a long time! No flexibility is…rigid! Is that cost worth a 0.79% annual difference? Some say no.

But don’t forget – there’s a behavioral benefit to earmarking that money strictly for retirement. Verrrry murky.

Murky Reason #2: 401(k) accounts charge fees. Could those fees add up to more than 0.79%? Absolutely!

David Blanchett’s research at Morningstar found that average 401(k) fees range from 0.37% (for large companies with big plans) to 1.42% (for small companies with small plans).

That’s right. Mike’s 0.79% annual advantage could get completely eaten—and then some!—by his plan’s annual fees.

Murky Reason #3: Future tax rates are incredibly murky, which is why I use current rates as a proxy for future rates.

How should we think about this problem? Mike’s 401(k) is hurt by future income tax hikes. Tom’s brokerage account is hurt by future capital gains tax hikes.

Some people would rather pay their income tax now (like Tom), and not have to worry about it later (like Mike).

“But My 401(k) Doesn’t Have Fees!”

Maybe. But are you sure?

95% of 401(k) plans have fees. But many people aren’t aware of them.

Here’s how to check your plan’s fees.

Conclusion: Get the Match, But Then…?

The objective analysis today shows two conclusions:

  1. An employer match is virtually always worth getting. The match percentage has to be near-zero before questioning whether it’s worthwhile. In our example, Mike’s 50% employer match provides him with so much long-term value over Tom. That’s why you should get your employer match!
  1. The rest of the 401(k)’s tax benefit can be questioned. The most important questions to consider are:
    1. How do you feel about “locking up” your money in a 401(k) until you’re 60 years old? Is that too strict? Alternatively, are you the type of person who needs the behavioral support of earmarking your dollars strictly for retirement? These are both subjective, personal questions.
    2. What are your 401(k) plan’s fees? High fees (>0.8%) can completely negate any tax benefit from maximizing your 401(k).
    3. Do you know how your taxes might change in the future? If your future income taxes will rise, 401(k) maximization looks bad. If your future income taxes will drop, 401(k) maximization looks good.

These findings opened my eyes. I have a new respect for the power of the taxable brokerage and for the potential drawbacks of 401(k) maximization.

Big dog Nick Maggiulli wrote a great article addressing “Scenario 2” last year. Our results are similar (which is good!). Whereas I found a 0.79% annual benefit from a 401(k) max-out, Nick’s analysis showed a 0.73% benefit. The difference is likely caused by our tax assumptions. Check out Nick’s work here.

Thank you for reading! If you enjoyed this article and want to read more, check out my Archive or Subscribe to get future articles emailed to your inbox.


P.S. – If you enjoy podcasts, check out the Best Interest Podcast!


401(a) Vs 403(b) Retirement Saving Plans: What’s the Difference?

401(a) and 403(b) both offer tax benefits for your retirement savings. While they are very similar, a 403(b) is different than a 401(a) plan. We will discuss both plans as well as laying out the key differences between the two. In the meantime, you can always talk to a financial advisor to assess your financial goals and risk tolerance and learn more about the 401(a) vs 403(b) comparison.

401(a) vs 403(b): A quick overview

Here’s a quick overview on the 401(a) vs 403(b) comparison.

Both 403(b)s and 401(a)s are tax-advantaged retirement plans. They have valuable tax benefits for retirement savers. A 401(a) and a 403(b) plan are both offered by government agencies, public schools and nonprofit organizations. Participants are usually government employees, public school teachers, nurses, doctors, librarians, etc.

In these accounts, your money grows free of taxes until you take it out. That means dividend and interest income accumulate on a tax-deferred basis.

401(a)s and 401(b)s resemble 401(k) plans. The main difference between is that 401(a)s and 401(b)s are offered by government, public employers, while 401(k) plans are offered by private corporations.

Understanding the 401(a) vs 403(b) comparison, will help you determine which one better suits your needs and goals.

*Helpful Tip: If you’re looking for a financial advisor to help you decide what type of retirement plan makes more sense to you, check out SmartAsset. Answer a few questions to see a list of three vetted advisors in your area.

403(b) plan: how is it different from 401(a) plan?

A 403(b) plan is a type of retirement account that is available for you at your employment. It offers an excellent opportunity to save money for retirement and to receive some extra money in employer matching.

A 403(b) plan is similar to a 401(k) plan. Just like a 401k plan, a 403b lets employees defer some of their salary into individual accounts.

This retirement plan is offered by:

  • public school, college, or university,
  • church, or
  • charitable entity tax-exempt under Section 501(c)(3) of the Internal revenue Code.

Participate in a 403(b) plan

To be eligible, you must be:

  • An employee of a public school system,
  • Faculty or staff of a college or university,
  • An employee of a hospital,
  • Minister of a church.

In a 403(b) plan, your employer decides the investment options. As an employee, you then can choose among the investments available within the plan. So, each individual 403(b) plan can differ significantly.

403(b) plans have an added plus: employer matching benefits are also available. Those benefits usually match the amount you contribute to the plan, dollar for dollar, or 50 cent to a dollar. In addition to the matching benefit, you have options in a 403(b) plan such as requesting a loan, etc.

There is a maximum contribution limit in a 403(b) plan. Just like a 401(k) plan, in 2021, you can contribute up to $19,500 a year. If you are 50 years old or older, you can contribute an extra $6,500 to a total of $26,000 a year in 2021.

Your employer decides where to invest your contributions. The typical choices include companies’ stocks, mutual funds, long term bond fund, money market fund, etc.

Tax benefits

There are tax benefits in a 403b plan. Your contributions are deducted from your paycheck before taxes are calculated. In other words, you don’t pay taxes on your contributions.

However, you must pay taxes on the withdrawals you make in retirement. Another tax benefit for 403(b) plans is that all dividends, capital gains, interest are accumulated tax free until you withdraw them as income.

401(a) plan: how is it different from 401(b) plan?

A 401(a) plan is also a type of retirement plan that employers can offer to their employees. However, just like a 403(b) plan, you have to work for non-profit organization, educational institution or government agencies. In other words, if you work for a private company, it won’t be available to you.

Your employer determines the plan’s investment choices. However the investment options are usually very safe and conservative. Participation in a 401(a) plan is often mandatory.

However, if you leave your non-profit employer, you can transfer your funds to a 401(k) plan or an individual retirement account (IRA). To be eligible, you have to be 21 years and older and have been working in the job for a minimum of 3 years.

In addition, you may qualify for a tax credit. Just as with most other retirement plans, there is a 10% early withdrawal penalty if you withdraw money before you reach the age of 59 1/2.

The contribution limit for a 401(a) plan is $58,000 in 2021, This represents the total contributions you and your employer can make.

However, if your salary is below that amount, you and your employer can contribute up to that salary. For example, if you make $35,000 a year, that is the amount you and your employer can contribute to your 401(a) account.

401(a) vs 403(b): the key differences

A key difference between a 403(b) and a 401(a) plan is the contribution limit. In a 401(b) plan, the contribution limit is $19,500 a year. If you are 50 years old or older, you can contribute an extra $6,500 to a total of $26,000 a year in 2021. Whereas, in 403(b) account, the contribution limit is actually higher. It is $58,000 a year.

Another key difference regarding the 401(a) vs 403(b) question is that the sponsors of a 401(a) usually makes it mandatory for their employees to participate in the plan. Whereas, sponsors of the 403(b) plan generally make it voluntary.

401(a) vs 403(b): Bottom line

Both 403(b) and 401(a) plans are vehicles used in retirement planning. Both accounts are offered by nonprofit organizations, some churches, hospitals, public schools. Employees who can participate in these accounts are often teachers, administrators, nurses, support staff, etc. However, the key difference between a 401(a) and a 403(b) plan is that the sponsors of a 401(a) usually makes it mandatory for their employees to participate in the plan. Whereas, sponsors of the 403(b) plan generally make it voluntary.

20 Questions to Know If You’re Ready for Retirement

Finding the right financial advisor that fits your needs doesn’t have to be difficult. SmartAsset’s free tool matches you with fiduciary financial advisors in your area in 5 minutes. Each advisor has been vetted by SmartAsset and is leally bound to act in your best interests. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.

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The post 401(a) Vs 403(b) Retirement Saving Plans: What’s the Difference? appeared first on GrowthRapidly.


What’s the Difference Between 401(k) and 403(b) Retirement Plans?

Investing in your retirement early is the best way to ensure financial stability as you age, especially when it comes to understanding various retirement options. Getting started may feel overwhelming — luckily we’re here to help. We help break down the difference between 401(k) and 403(b) accounts, and how they can impact your financial life.

You may already know the value in adjusting your budget to make saving for a rainy day a priority. But are you also prioritizing your retirement savings? If you’re just getting started in the workforce and looking for ways to invest in yourself, 401(k) and 403(b) plans are great options to know about. And, the main difference between a 401(k) and a 403(b) is the company who’s offering them.

401(k) accounts are offered by for-profit companies and 403(b) accounts are offered by nonprofit, scientific, religious, research, or university companies. To understand the similarities and differences between plans in depth, skip to the sections below or keep reading for an in-depth explanation.

How a 401(k) Works
How a 403(b) Works
The Difference Between 401(k) and 403(b)
The Similarities Between 401(k) and 403(b)
5 Ways to Grow Your Retirement Savings
What is a 401(k) and 403(b)
$19,500 with your employer matches. Plus, most retirement funds have required minimum distributions (RMDs) by the time you turn 70. This essentially means you have to take a minimum amount of money out each month whether you want to or not.

In most cases, employers will offer 401(k) matching to encourage consistent contributions. For example, your employer match may be 50 cents of every dollar you contribute up to six percent of your salary. For example, with this employer match on a $40,000 salary, you would contribute $200 and your employer would contribute an additional $100 each month. This pattern would continue until your annual contributions hit $2,400 and your employer contributes $1,200.

Employee matching is essentially free money. You’re monetarily rewarded for your retirement payments. Be sure to pay attention to vesting periods when setting up your employer match. Vesting periods are an agreed amount of time you need to work at a company before you receive your 401(k) benefits. For example, some companies may require you to work for their team for a year before earning retirement benefits. Other employers may offer retirement benefits starting the day you start working with them.
403(b) accounts include school boards, public schools, churches, hospitals, and more. This type of account is also known as a tax-sheltered annuity plan — they allow pre-tax income to be invested until taken out.

Employers that offer 403(b) retirement plans may offer a pool of provider options that undergo nondiscrimination testing. This allows employers that qualify for this account to shop around for plans that offer the best benefits and don’t discriminate in favor of highly compensated employees (HCEs). For instance, some 403(b) accounts may charge more administrative fees than others.

Employers are able to offer employee matching on 403(b) accounts if they decide to. To cut costs for nonprofit companies, 403(b) retirement plans generally cost less than 401(k) accounts. Costs associated with starting up these accounts may not affect you, but it may affect your employer.

Account Type 401(k) 403(b)
Yearly Contribution Limit $19,500 $19,500
Employer-Issued Packages For-profit employers:
Corporations, private establishments, etc. and sole proprietors
Non-profit, scientific, religious, research, or university employers:
School boards, public schools, hospitals, etc.
Minimum Withdrawal Age 59.5 years old 59.5 years old
Early Withdrawal Fees 10% penalty, tax, and additional fees may vary 10% penalty, tax, and additional fees may vary


The Differences Between 401(k) and 403(b)

Both a 401(k) and 403(b) are similar in the way they operate, but they do have a few differences. Here are the biggest contrasts to be aware of:

  • Eligibility: 401(k) retirement plans are issued by for-profit employers and the self employed, 403(b) retirement plans are for tax-exempt, non-profit, scientific, religious, research, or university employees. As well as Hospitals and Charities.
  • Investment options: 401(k)s offer more investment opportunities than 403(b)s. 401(k) accounts may include mutual funds, annuities, stocks, and bonds, while 403(b) accounts only offer annuities and mutual funds. Each employer varies in retirement benefits — reach out to a trusted financial advisor if you have questions about your account.
  • Employer expenses: 401(k) accounts are generally more expensive than 403(b) accounts. For-profit 401(k) accounts may pay sales charges, management fees, recordkeeping, and other additional expenses. 403(b) plans may have lower administrative costs to avoid adding a burden for non-profit establishments. These costs vary depending on the employer.
  • Nondiscrimination testing: This form of testing ensures that 403(b) retirement plans are not offered in favor of highly compensated employees (HCEs). However, 401(k) plans do not require this test.


The Similarities Between 401(k) and 403(b)

Aside from their differences, both accounts are set up to aid employees in retirement savings. Here’s how:

  • Contribution limits: Both accounts cap your annual contributions at $19,500. In the event you contribute over this limit, your earnings will be distributed back to you by April 15th. If you’re under your retirement contributions by the time you’re 50 years old, you’re allowed to make catch-up contributions. This means that, if you’re eligible, you can contribute $6,500 more than the yearly contribution limit.
  • Withdrawal eligibility: You must be at least 59.5 years old before withdrawing your retirement savings. In the case of an emergency, you may be eligible for early withdrawal. However, you may be charged penalties, taxes, and fees for doing so.
  • Employer matching: Both retirement account options allow employers to match your contributions, but are not required to. When starting your retirement fund, ask your HR representative about potential benefits and employer matching.
  • Early withdrawal penalties: If you choose to withdraw your retirement savings early, you may be penalized. In most cases, you need a valid reason to withdraw your funds early. Eligible reasons may include outstanding debt, bankruptcy, foreclosure, or medical bills. In addition, you may be charged a 10 percent penalty fee, taxes, and other fees. During a downturned economy, as we’ve seen with the COVID-19 pandemic, fees may be waived.

5 Ways to Grow Your Retirement Savings
retirement plan options and their benefits. When employers offer retirement matches, consider contributing as much as you can to meet their match.

2. Set up Monthly Automatic Contributions

Save time and energy by setting up automatic contributions. You may feel less interested in contributing to your retirement as your payday approaches. Taking time to set up a retirement fund and budgeting for this change may be holding you back. To meet your retirement goals, consider setting up automatic payments through your employer. After a while, you may not even notice the slight budget adjustment.

3. Leverage Employer Matching

Employer matching is essentially free money. Employers may put money towards your future for nothing but your own contribution. This encourages employees to consistently put money towards their retirement savings. Not only are you able to earn extra money each month, but this “free money” will grow with interest over time. If you can, match your employer’s contribution percentage, if not more.

4. Avoid Early Withdrawal

Credit card balances, student loans, and mortgages can be stressful. Instead of withdrawing early from your retirement fund to pay for these, consider other debt payoff methods. If you’re eligible to withdraw from your retirement early, you may face penalty fees, taxes, and administrative expenses. This may hinder your savings potential or push back your desired retirement date.

5. Contribute Your Future Raises and Bonuses

If you’re saving less than $19,500 to your retirement fund this year, consider contributing more. If you earn a bonus or a raise, stick to your current budget and consider increasing your contributions. Ask your employer to increase your retirement payments right before you receive a bonus or raise. The more you contribute, the more interest you’ll accrue over time.

Whether your retirement funds are established through a 401(k) or a 403(b), these accounts offer you the chance to build your financial portfolio. Consistently funding your retirement account may better your financial plan and set you at ease. As your contributions age, so do your interest earnings. You’ll be able to make money on your pre-taxed income and set your future self up for success. Get started by checking in on your budget and carving out a specific amount to put towards your retirement each month.

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How to Create Your Own Retirement Plan

One of the good things of working for a company is that they create a retirement plan for you. As an employee, you don’t have to do anything else but to participate in the plan. However, when you’re self-employed or a small business owner, you’re responsible of setting up your own retirement plan.

When it comes to operating your own business, time is of the essence. However, even if you’re crazy busy, saving for retirement should be a priority. Indeed, a retirement account allows you to contribute pre-tax money, which lowers your taxable income.

Luckily, a financial advisor can help you save time and help you choose the right plan that is best for you. Below are four retirement saving options you can create as a self-employer individual.

1. Solo 401k

A solo 401k is for small businesses or sole proprietors who don’t have any employees other than a spouse working for the business. The solo 401k mirrors a typical 401k plan that most companies offer. The main difference is that you can contribute as an employee and employer.

In other words, because you’re both the boss and the worker, you get to contribute in each capacity. That in turn allows you to contribute a higher amount each year. However, your total yearly contributions cannot exceed $58,000 or $64,000 for individuals age 50 or older as of 2021. To set up a solo 401k, you have to get in touch with a financial institution.


If you’re an independent contractor, self-employed, or has a small business with 25 employees or less you can set up a SEP (Simplified Employee Pension). It’s very easy to establish and don’t even require you to incorporate your business to qualify.

In a SEP IRA, the employer alone contributes to the fund, not the employees. You can contribute up to 25% of your annual salary or $58,000 in 2021, whichever is less.

3. Keogh Plan

Keogh plans are available to self-employed people, including sole proprietors who file Schedule C or a partnership whose members file Schedule E. This type of plan is preferable among those who have a high and stable income.

But the main advantage the Keogh has is the high maximum contribution you can make. In 2021, you can contribute up to $58,000. To set up, you will need to work with a financial institution such as Charles Schwab. 

4. Simple IRA

The Simple IRA was created by the Small Business Protection Act to help those who work at small companies to save for retirement. The small business can offer the plan if it has 100 or fewer employees.

Both the employer and the employee can contribute up to $13,000 in 2021, plus an additional catch-up amount of $3,000 if you’re 50 or older. If a company offers a Simple IRA, it must match an employee’s contribution dollar for dollar, up to 3% of each participant’s annual salary or make a nonelective 2% contribution to all employees.

Where to Invest Your Keogh, SEP IRA, Solo 401k, Simple IRA

As a small business owner, there is always an investment program that suits your needs for your IRA, SEP, Keogh and solo 401k. Places such as banks, brokerage firms and mutual funds institutions such as Vanguard, Fidelity, Charles Schwab are great options. But before opening account, make sure you consider how much money you have, your appetite for risks, the annual fee, etc.

The Bottom Line

If you’re a small business owner or self employed, you should take advantage of the tax benefits offered by these plans mentioned above. Creating a retirement plan is important, because not only will you be able to grow your retirement savings faster but also no one is going to do it for you. 


  • 4 Simple Ways to Accelerate Your Retirement Savings
  • How to Retire at 50:10 Easy Steps to Consider

Tips on Retirement Planning

Retirement planning can be a major challenge, but you don’t have to go in it alone. Speak with a financial advisor who can help you come up with a unique plan based on your circumstances and situations. Use SmartAsset advisor matching tool to get matched with fiduciary financial advisors in just 5 minutes.


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How to Reassess Your Retirement Plans

Retirement planning is not a “set it and forget it” kind of exercise. Life changes quickly, and it’s important to understand that your retirement plans need to change just as fast. The retirement plan you had in your 20s when you were single is not the same retirement plan you’ll want in your 40s and 50s as your kids look to head off to college. Volatility with the stock market or other investments can also impact your retirement plans. As things change, it’s important to periodically reassess your retirement plans.

When you need to reassess your retirement plans

There are a few different times where you’ll want to reassess your retirement plans. The most crucial times will be when you have major changes to your life or family.

  • Marriage or Divorce
  • Birth or adoption of children
  • Change in employment
  • Moving to a different house

These types of major life events can have a major impact on how much money you need to retire, so you’ll want to reassess your plans. But it’s not only during these major life changes that revisiting your retirement planning makes sense. It’s smart to regularly review where you’re at for retirement, just like you should be regularly reviewing your monthly budget.

Understanding volatility in retirement planning

The one time that you DON’T want to make drastic changes to your retirement planning is during a major stock market downturn. When you see those big negative amounts in your 401k or brokerage account statements, it can be easy to panic and try to sell your stocks in order to stop the bleeding. 

The fact of the matter is that the stock market is extremely volatile. The stock market may average 8% or so over the long-term, but that one number masks a number of huge swings to both the positive and negative. Instead of panicking and selling when the stock market goes down, be proactive and prepare for the inevitable downturn. Sometimes the best thing to do is absolutely nothing.

Get comfortable with risk

Along the same lines of understanding volatility in the stock market, it’s important to get comfortable with risk. In general, the higher return that a type of investment will bring, the higher the amount of risk will also be. Deciding how comfortable you are with risk is an important part of assessing your retirement plans.

Risk is something that should not be feared — after all, hiding all of your money underneath your mattress is a relatively low-risk proposition. But it’s also not likely to lead to a successful retirement. Consider your time horizon — how long you have until you’re likely to retire — and adjust your risk accordingly. If you’re younger and further from retirement, you can afford to invest in relatively riskier investments. The closer that you get to retirement, the less risk that you should be taking on.

Review your portfolio allocation

Understanding and being comfortable with risk can help you as you review your portfolio allocation. Since different types of investments come with differing amounts of risk, it’s important to make sure your portfolio is allocated between investment types in a way that makes sense for your specific situation. 

Generally, the younger you are and the further you are away from retirement, the more it makes sense to have most of your investments in the stock market. The stock market has more volatility but historically has provided the highest returns as well. As you get older and closer to retirement, you will generally want to move a higher and higher percentage of your portfolio away from stocks and into an investment like bonds that has lower returns but also lower risk.

Consider talking with a financial advisor

A financial advisor can be a good resource if you’re looking at making sure you’re on the right road to retirement. A trusted financial advisor can look at where you’re at now, where you want to go, and help ask the questions you need to answer to make sure you’re on the right path. If you don’t currently have one, make sure to find a financial advisor that fits with the type of advice you are looking for.

The Bottom Line

It’s important to regularly reassess your retirement plans. You should review your retirement plans on a recurring basis with your spouse, trusted friends and family, or a financial advisor. You should also review your retirement plans whenever you have a major life change, such as a new child, new job, or when you move to a new home. Following these simple steps can help you make sure that you are on the road to a solid financial future.

The post How to Reassess Your Retirement Plans appeared first on MintLife Blog.


VLXVX: Vanguard Target Retirement 2065 Fund – Reviews

VLXVX refers to the Vanguard Target Retirement 2065 Fund. The VLXVX is one of the best Vanguard retirement funds. It is designed for investors who plan to retire or leave the workforce in 2065, which is the target year. Also, the fund invests more aggressively in the beginning. As it approaches the target date, i.e. 2065, it becomes more conservative. That is, it allocates its assets in more bonds and other low risk securities as opposed to stocks. The fund provides investors exposure to low-cost, broadly diversified mutual and index funds.

If you’re planning to retire in or within a few years of 2065, then you should consider the Vanguard Target Retirement 2065 Fund (VLXVX).

VLXVX: an overview

The Vanguard Target Retirement 2065 Fund (VLXVX) is designed for those investors who plan on retiring in the year of 2065. The fund invests in other Vanguard mutual funds (see below) and provides a broad diversification. Its asset allocation is more aggressive in the beginning and becomes more conservative over time. That means as the fund approaches 2065, the percentage of assets allocated to bonds and other less risky securities will increase while the percentage of assets allocated to stocks will decrease.

VLXVX: Asset Allocation

The Vanguard Target Retirement 2065 Fund is composed (as of 4/30/2021) of the following Vanguard funds: the Vanguard Total Stock Market Index Fund Investor shares (54.60%); Vanguard Total International Stock Index Fund Investor Shares (35.70%); Vanguard Total Bond Market II Index Fund Investor Shares (7.10%); the Vanguard Total International Bond Index Fund Investor Shares (2.40%); and the Vanguard Total International Bond II Index Fund (0.20%).

Moreover, the VLXVX invests in domestic stocks (54.19%); foreign stocks (35.84%); and preferred stocks (0.01%). Moreover, the fund invests in domestic bonds (6.60%); convertibles (0.08%); foreign bond (2.98%); cash (0.27%) and others (0.03%).

VLXVX: Sector Composition

The VLXVX invests in technology (18.6%), financial services (15.60%), consumer cyclical (12.18%), healthcare (11.83%), industrials (11.10%), communication services (9.12%), consumer defense (6.73%), basic materials (4.81%), real estate (3.57%), energy (3.34%) and utilities (2.75%).

VLXVX: Fees, Minimums, Price & Performance

The VLXVX has a reasonable expense ratio of 0.15% and an initial minimum investment of $1,000, making it one of the best Vanguard retirement funds. A $10,000 invested in this fund has a $267 fees over 10 years. In addition to that fee, Vanguard charges a $20 annual account service fee if you have a balance of less than $10,000 in the account. As for performance, this fund has returned 51.66% over the past year and 12.02% percent over the past three years. The price for one share is $29.87 as of May 21, 2021.

VLXVX: Risks

This Vanguard retirement fund invests in stocks, bonds and other securities domestically and internationally. Therefore, they are subject to risk that comes with investing in high yield, small cap and other US and foreign securities. So, you should be able to stomach the risks that come from the volatility of the market. However, the risk associated with the Vanguard Target Retirement 2065 Fund is Average comparing to other Vanguard funds. You should consider investing in this Vanguard retirement fund if you’re planning to retire between 2063 to 2067.

In conclusion, the VLXVX is open to new investors. It has a YTD return of 8.5%, a 3-year annualized return of 13.3%. Its net asset is $1.33 billions. The target date is 2065. The expense ratio is 0.15% and the minimum investment is a reasonable $1000, making it one of the best Vanguard retirement funds out there. Moreover, the Vanguard Target Retirement 2065 Fund invests in stocks, bonds, cash, convertible bonds, preferred stocks and other investments. If you are a long term investor, meaning that you don’t plan to retire soon, you should fare well in the VLXVX fund.


1 Month +3.86% VLXVX
3 Months +8.9% VLXVX
Year to Date +8.58% VLXVX
1 Year +42.97% VLXVX
3 Year +13.27% VLXVX
Returns as of May 21, 2021

Speak with the Right Financial Advisor

You can talk to a financial advisor who can review your finances and help you reach your goals. Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post VLXVX: Vanguard Target Retirement 2065 Fund – Reviews appeared first on GrowthRapidly.


Budgeting Tips for the Sandwich Generation: How to Care for Kids and Parents

Everyone knows that raising kids can put a serious squeeze on your budget. Beyond covering day-to-day living expenses, there are all of those extras to consider—sports, after-school activities, braces, a first car. Oh, and don’t forget about college.

Add caring for elderly parents to the mix, and balancing your financial and family obligations could become even more difficult.

“It can be an emotional and financial roller coaster, being pushed and pulled in multiple directions at the same time,” says financial life planner and author Michael F. Kay.

The “sandwich generation”—which describes people that are raising children and taking care of aging parents—is growing as Baby Boomers continue to age.

According to the Pew Research Center, 29 percent of U.S. adults have a child younger than 18 at home, and 12 percent of these parents provide care for an adult as well.1 Aside from a time commitment, you may also be committing part of your budget to caregiving expenses like food, medications and doctor’s appointments.

Budgeting tips for the sandwich generation include communicating with parents.

When you’re caught in the caregiving crunch, you might be wondering: How do I take care of my parents and kids without going broke?

The answer lies in how you approach budgeting and saving. These money strategies for the sandwich generation and budgeting tips for the sandwich generation can help you balance your financial and family priorities:

Communicate with parents

Quentara Costa, CFP®, founder of an investment advisory service, served as caregiver for her father, who was diagnosed with Alzheimer’s disease, while also managing a career and starting a family. That experience taught her two very important budgeting tips for the sandwich generation.

First, communication is key, and a money strategy for the sandwich generation is to talk with your parents about what they need in terms of care. “It should all start with a frank discussion and plan, preferably prior to any significant health crisis,” Costa says.

Second, run the numbers so you have a realistic understanding of caregiving costs, including how much parents will cover financially and what you can afford to contribute.

29 percent of U.S. adults have a child younger than 18 at home, and 12 percent of these parents provide care for an adult as well.

Pew Research Center

Involve kids in financial discussions

While you’re talking over expectations with your parents, take time to do the same with your kids. Caregiving for your parents may be part of the discussion, but these talks can also be an opportunity for you and your children to talk about your family’s bigger financial picture.

With younger kids, for example, that might involve talking about how an allowance can be earned and used. You could teach kids about money using a savings account and discuss the difference between needs and wants. These lessons can help lay a solid money foundation as they as move into their tween and teen years when discussions might become more complex.

When figuring out how to budget for the sandwich generation, try including your kids in financial decisions.

If your teen is on the verge of getting their driver’s license, for example, their expectation might be that you’ll help them buy a car or help with insurance and registration costs. Communicating about who will be contributing to these types of large expenses is a good money strategy for the sandwich generation.

The same goes for college, which can easily be one of the biggest expenses for parents and important when learning how to budget for the sandwich generation. If your budget as a caregiver can’t also accommodate full college tuition, your kids need to know that early on to help with their educational choices.

Talking over expectations—yours and theirs—can help you determine which schools are within reach financially, what scholarship or grant options may be available and whether your student is able to contribute to their education costs through work-study or a part-time job.

Consider the impact of caregiving on your income

When thinking about how to budget for the sandwich generation, consider that caring for aging parents can directly affect your earning potential if you have to cut back on the number of hours you work. The impact to your income will be more significant if you are the primary caregiver and not leveraging other care options, such as an in-home nurse, senior care facility or help from another adult child.

Costa says taking time away from work can be difficult if you’re the primary breadwinner or if your family is dual-income dependent. Losing some or all of your income, even temporarily, could make it challenging to meet your everyday expenses.

“Very rarely do I recommend putting caregiving ahead of the client’s own cash reserve and retirement.”

Quentara Costa, CFP®

When you’re facing a reduced income, how to budget for the sandwich generation is really about getting clear on needs versus wants. Start with a thorough spending review.

Are there expenses you might be able to reduce or eliminate while you’re providing care? How much do you need to earn each month to maintain your family’s standard of living? Keeping your family’s needs in focus and shaping your budget around them is a money strategy for the sandwich generation that can keep you from overextending yourself financially.

“Protect your capital from poor decisions made from emotions,” financial life planner Kay says. “It’s too easy when you’re stretched beyond reason to make in-the-heat-of-the-moment decisions that ultimately are not in anyone’s best interest.”

Keep saving in sight

One of the most important money strategies for the sandwich generation is continuing to save for short- and long-term financial goals.

“Very rarely do I recommend putting caregiving ahead of the client’s own cash reserve and retirement,” financial planner Costa says. “While the intention to put others before ourselves is noble, you may actually be pulling the next generation backwards due to your lack of self-planning.”

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Making regular contributions to your 401(k), an individual retirement account or an IRA CD should still be a priority. Adding to your emergency savings each month—even if you have to reduce the amount you normally save to fit new caregiving expenses into your budget—can help prepare you for unexpected expenses or the occasional cash flow shortfall. Contributing to a 529 college savings plan or a Coverdell ESA is a budgeting tip for the sandwich generation that can help you build a cushion for your children once they’re ready for college life.

When you are learning how to budget for the sandwich generation, don’t forget about your children’s savings goals. If there’s something specific they want to save for, help them figure out how much they need to save and a timeline for reaching their goal.

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Ask for help if you need it

A big part of learning how to budget for the sandwich generation is finding resources you can leverage to help balance your family commitments. In the case of aging parents, there may be state or federal programs that can help with the cost of care.

Remember to also loop in your siblings or other family members when researching budgeting tips for the sandwich generation. If you have siblings or relatives, engage them in an open discussion about what they can contribute, financially or in terms of caregiving assistance, to your parents. Getting them involved and asking them to share some of the load can help you balance caregiving for parents while still making sure that you and your family’s financial outlook remains bright.

Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.

1 “More than one-in-ten U.S. parents are also caring for an adult.” Pew Research Center, Washington, D.C. (November 29, 2018)

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