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Over-Funded Retirement Accounts

Thursday, May 16th, 2019

Life happens pretty fast. Most of us are busy working away, adding to our retirement accounts in a company plan or an IRA. Before we know it, we’re nearing retirement. And there is something I’ve noticed about this.

It isn’t hard to build up our retirement if it’s taken out of our paychecks or checking accounts automatically. We don’t ever really miss it. But we may not find it so easy to do this with our after-tax money. Setting aside money for emergencies, other long-term savings, ready cash for vacations and big ticket items is important also.

We’ve grown accustom to instant gratification, impulsively buying things we don’t need, and we whittle away the money we could be saving in a savings or investment account apart from long-term retirement ones.

In approaching retirement, many people find they have a nice amount in their IRAs or retirement plans, yet not much elsewhere. Once in retirement, or unluckily, laid off, they find they need to not only depend on an income from the retirement accounts, but it also is the place they need to go for big expenses such as repairing big items, needing a new a/c unit, or other big costs. And if they turn 70 ½, now they have to take a significant amount out for their RMD, (Required Mandatory Distribution), because the IRS wants to tax that account you’ve had great tax advantages on for so long.

One scenario: George has $1,000,000 in his IRA. He turned 70 ½ this year and must withdraw $50,000 and pay taxes on that. He may not need it, but he has to take the distribution anyway.  He could have directed some of those savings to non-retirement accounts.

Another scenario: Harry, 55, has saved $300,000 in his IRA but has only about $7,000 in savings. He needs a new roof that will cost him $15,000. He needs to take it out of his IRA, paying income tax and a 10% penalty because he is not yet 59 ½ .

The advice here is, in addition to saving for retirement, it is important to set aside other monies that is readily available without penalties or tax consequences. There are several ways to set this up automatically, much like your retirement plan at work.

  • Ask your employer if they have an after-tax savings plan you can contribute to that is reasonably accessible to you.
  • Set up a savings, money market, or mutual fund and direct your bank to send to this account a set amount at regular periods. Could be around your paycheck deposits.
  • When you sit down to pay your bills make a point to pay yourself first. Transfer money from your bank account to your savings online.
  • For extra windfalls such as a bonus, monetary gifts, inheritance, etc. save a portion.

There are more ideas, see if you can think of some. Just be aware so all your assets aren’t in a retirement account. Retirement accounts are for retirement income down the road.

Get with a financial planner and figure out a plan that will give you the income you’ll need in retirement and savings for needs while you’re working.

Photo by Fabian Blank on Unsplash

Posted in Articles, Money Management

On the Media September 2015

Friday, September 25th, 2015

The reports on the markets are myopic. Investors, financial institutions and most of all the media focus on a single news story, and that consequently is what moves the markets short term. Today it is China, yesterday it was possible rate hikes, and before that it was Greece. There will always be subjects for the media to obsess on to get the viewers and readers attention. They combine hype with bits of news and escalate the information to a level of financial pornography. The fear created by this is what moves markets wildly in the short term. Even those who don’t believe the hoopla know that others are going to act on it, so fearing they’ll be left in a portfolio exposed to danger, they sell too.
Our portfolios are managed to ignore the short term fear and short term hype because we know it is just that, short term. Empirical research shows over and over again that staying invested in a well-diversified portfolio enables investors to fair better than if they moved in and out of the markets in an attempt to stay safe. The only way to insure losses is by selling into a down market. We see it too much. It’s an emotional decision made without knowledge of how the markets actually work.
Most of our clients learned this by staying disciplined through the 2008 bear market and were not permanently affected, recovering nicely. Just something to think about the next time you begin to worry.

Posted in Articles, Money Management

The Market’s Correction

Friday, September 25th, 2015
 The sharp downturn in the US stock market the past weeks herald a new correction. This means the stock market indices: the Dow Industrials and the S & P 500, have dropped more than 10% from the last peak, which was in May of this year. The last time it fell into this territory was in April of 2011. The trading was light this time, meaning there weren’t many traders, so this small number created the decline.
     This has been anticipated, and is a normal movement in the overall markets.
     It was due in part to irrational worries over China’s economy and the decline of oil prices. Here again, as we consistently say, these machinations are no reason for us to be concerned or a call to action if you are in a well-diversified global portfolio similar to the type we recommend.
     Be forewarned, you will see inflammatory words across the news media like ‘panic’ and ‘major sell-off’ ‘plunge’ and ‘crash’.
     The underlining corporations represented in the stock market are healthy and continuing to grow. If you are still concerned, of course we are available to answer your questions.

Posted in Articles, Money Management

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Osprey Money Management LLC is a Registered Investment Advisory Firm registered within the State of Florida.


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