Tag Archives: retirement


Does It Ever Make Sense to Stop Saving For Retirement?

This Knowledge Center post was adapted from Wealthfront COO Adam Nash’s answer to a question on Quora — Ed. The Question: Let’s say I’m 30 and have $250K in my 401k. If I stopped contributing now I would have $2.5M in my account by the time I’m 60 and am allowed to make a withdrawal. That should be enough right? Even if it isn’t, there must be some point where it makes sense not to max it out anymore. The short answer is no. What you have saved is very likely not enough. I know what you are thinking. You’re thinking that $250K is a mountain of cash to build on for the next 30 years. And it is, no […]

Q&A with William Sharpe: Investing In a Turbulent Market

Nobel Prize-winning economist William Sharpe recently published an article showing retirees how much more money they could have in retirement by avoiding actively managed funds in favor of index-oriented funds. In the article, “The Arithmetic of Investment Expenses” in the Financial Analysts Journal, Sharpe showed that a person saving for retirement who chooses low-cost investments instead of higher-cost investments could have a standard of living throughout retirement that is more than 20% higher. Professor Sharpe[1] recently spoke to Bill Snyder of the Stanford GSB about retirement strategies and lessons learned (or not learned) from the financial meltdown of 2007. This Q&A was adapted from that interview and used with Professor Sharpe’s permission. What did we learn from the crash and […]

You Need Equity To Live In Silicon Valley

The other day we were modeling our typical client’s spending when we realized something disturbing – an average Bay Area-based young couple has to own equity in a business if they hope to send their kids to a good university and be able to retire well. Investing well alone can’t get you there. Our analysis found you need to work for at least one company where your equity stake can generate at least a few hundred thousand dollars after tax to make your economics work in the Bay Area. The problem is the hole that opens up in a typical couple’s budget when they are in their late 30s. Three big pressures converge then: the mortgage on your expensive Bay […]

7702 Retirement Plan? There’s No Such Thing

A growing number of insurance companies and independent financial advisors have been selling “7702 Plans,” sometimes referred to as a “7702 Private Plan,” for retirement. On Google alone, a query for “7702 plan” results in almost 1.5 million pages of matches. This is fascinating, largely because there is no such thing as a 7702 plan. A vehicle for selling life insurance If you go to one of the thousands of websites, you’ll find a description of something that sounds like a 401(k) or IRA, but is based on life insurance. The page will explain that unlike traditional retirement plans like 401(k) and IRA accounts, “life insurance retirement plans” have no limit on contributions or size, and no requirements for withdrawals […]

High Income? Here’s How You Open A Roth

First made available to investors in 1998, Roth IRAs introduced a whole new structure for tax-deferred saving. Until then, investors could make tax-deductible contributions to traditional IRAs and 401(k)s. Roth accounts allowed tax-free distributions. Many of our clients want to take advantage of both ways of saving for retirement. The problem: Roth accounts have income limits. In 2013, single filers making more than $127,000 in adjusted gross income, and married couples making more than $188,000, are not allowed to contribute to Roth IRAs. The question: If I – or my spouse and I – are above the income limits for Roth IRAs this year, can I still Roth? The answer, fortunately, is yes…if you know how. Option 1: A Roth […]

The Case Against Maxing Out Your 401(k)

2012 IPOs: High Expectations, No Assurances

Most every personal finance blog I have ever read recommends maxing out your 401(k) contribution. They tell you to “just do it” – contribute as much as you can, as early as you can. I couldn’t disagree more. Forced savings I believe most bloggers (and many financial planners and low-quality investment advisors) recommend maximizing 401(k) contributions as a way to enforce a savings discipline. They believe that without automatic deductions, people won’t save at all. Our readership tends to be more disciplined and intelligent than the average personal finance blog readers, so I don’t think they need such a brute force recommendation. For our clients and readers, we emphasize transparency, rational decision-making and the use of mathematical tools. We recognize […]

When A Roth 401(k) Trumps A Traditional 401(k)

The New Year’s Day tax deal (also known as the fiscal cliff legislation) made headlines in the retirement world because it included new rules to make it easier for employees to convert existing traditional 401(k) plans to Roth 401(k) plans. Over the past six years, an increasing number of companies have begun to roll out Roth 401(k) options for their employees. Many people now have the simple question: “When does it make sense to choose a Roth 401(k)?” Before we answer that question, you should understand the key difference between a Roth 401(k) and a traditional 401(k). With a Roth, you’ll pay taxes on the money you invest now, but no taxes when you withdraw the money at retirement. In […]

People in Their 20s & 30s: Become a Savvy Investor

People in their 20s or 30s, you face some of the biggest challenges and the biggest opportunities of any investor. (See Preventive Medicine for One Young Doctor’s Growing Portfolio). If you have a solid income stream, you face a bewildering array of demands on your money. You may want to save to buy a house; you probably have college loans to pay off; and you’re already thinking about socking money away for “big ticket” items in your future like cars, vacations and kids’ college! One crucial realization you’ll have as a young investor is that different goals will require different investment vehicles. Key Investment Vehicles The Rainy Day Fund There’s no clear consensus among experts as to exactly how much […]

GenY’ers Freeze Up When They Should Be Investing

The extent to which the market’s volatility is contributing to the feeling of uncertainty was clear in a new survey released this week by Guardian, a life insurance company. Some 39% of Americans are overwhelmed by the idea of how to save for retirement, based on the survey of 1,202 people, which also looked at how the different generations view saving, investing and retirement. As you would expect, those closest to retirement are the most likely to be worried about having enough to retire. But Gen Y’ers also are worried and significantly confused about their finances in general. A higher proportion of Gen Y’ers, 75%, said that in light of the last five years they are more likely to park […]