Today’s Smart Money Question:
Be careful of making assumptions about certain areas of your financial plan. Some of these could be correct, but they could just as likely be wrong.
(Click the featured times below to jump forward in the episode)
Here Are Just A Handful Of Things You’ll Learn:
4:36 –Bad Assumptions: Your Roth IRA Or Traditional IRA Will Save You Money.
- To be clear, we believe a Roth IRA will save you money in the end, but we still want to address this assumption. Historically, we’re in a period of low tax rates. This means, most likely, that taxes will rise in the future. Therefore, it’s better to pay the tax on your investments now than later on your gains. If you’re invested in a traditional IRA, your initial investments aren’t taxed. However, Uncle Sam will collect his cut of your gains. On the other hand, the government taxes your initial investments into a Roth IRA, but they allow you to keep your gains. It’s cheaper to pay the tax on your principal than it is your gains, especially when we’re expecting taxes to rise.
7:35 – Bad Assumptions: Delaying Social Security Will Yield The Most Income.
- When debating when to take Social Security, stay away from the politics and examine your own situation. It’s possible that depending on your number of assets, you will need the immediate income. While your check will be smaller, you’ll have a guaranteed income stream each month. Furthermore, Social Security is all about longevity. You see, the longer you wait to take your benefit, the larger the amount you’ll be able to take. However, that doesn’t necessarily mean waiting will yield you the most money. If you drain your other assets just to wait to take Social Security, you could still lose money. Work with your advisor to determine when to withdraw your benefit.
10:35 – Bad Assumptions: Putting Money Into Bonds Will Create A Safer Portfolio.
- We’ve seen interest rates increasing lately, and the government plans to hike them again in the future. Although we’re in a period of relatively low interest rates, it’s safe to say we’re in a rising interest rate environment. The problem with bonds is their value tends to decrease in this environment. If you shift your portfolio into bonds, you could take a hit. After all, you don’t know when you’ll need that money, and you might not have time to wait on the bond market to cycle around. Furthermore, it’s important to look at what’s inside your bond funds. If your bonds have a low credit rating, you could find they’re a risky investment.
Other Smart Money Points:
- 12:32 – Bad Assumptions: Taking A Lump Sum Is Always The Best Approach.
- 14:38 – Upcoming Workshops.
The Answer:
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