Shielding Retirement Assets From Taxes

For many investors, a large portion of their investments are held in 401(k)s, IRAs, or other tax-favored retirement vehicles. While these accounts can be ideal for sheltering retirement savings from taxes both preretirement and post-retirement, they can also be highly vulnerable to tax losses in an estate, if they are not bequeathed properly. For instance, a $1 million IRA inheritance could be whittled to almost nothing under worst-possible circumstances, such as a combination of estate taxes, top income tax brackets, and missed withdrawal deadlines. Avoiding these pitfalls means knowing the...

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Understanding Your Retirement Income Replacement Ratio

Although the term retirement income replacement ratio sounds formidable, it’s actually an easily understood concept that doesn’t require any fancy math. The ratio helps you zero in on your retirement savings goal and periodically measure your progress as you move toward your target. Will you need 60%, 75%, 90%, or even 100% of the income you have in your last year of work to maintain a desirable standard of living after you retire? The answer to this question is your income replacement ratio — the percentage of your preretirement earnings that will provide you with the same...

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INVESTING FOR THE LONG-TERM

In his 2004 Investment Classic, “Stocks For The Long-Run”①, Jeremy Siegel analyzed 200 years (1802-2002) of investment returns for U.S. stocks, government bonds, gold and the dollar.  He then adjusted the returns for inflation to arrive at an annualized real (after inflation) return on each asset class.  In the fifth edition of his book, published in 2014, he extended the time frame to 210 years (1802-2012).   The real (after inflation) annualized returns over the 210 year period were as follows: U.S. stocks 6.6%, long-term government bonds 3.6%, short-term treasury bills 2.7%, gold...

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DO ECONOMIC EXPANSIONS DIE OF OLD AGE?

This month marks the seventh anniversary of our current economic expansion, making it (at 84 months) the fourth longest uptrend among the thirty-three business cycles we have experienced since 1854.  All three of the longer expansions – 120 months, 106 months, and 92 months – have occurred since World War II according to the National Bureau of Economic Research (NBER).   But even our longest expansion is puny when compared with the records set by many other advanced economies.  “The Netherlands holds the record – its longest expansion, which ended in 2008, lasted nearly 26 years. ...

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HOW OUR ECONOMY GROWS

Our economy has always moved in cycles of expansions and contractions.  We have completed 33 business cycles since 1854, and 11 just since World War II1.  Our post-war cycles have ranged from over 10 years to under 2 years.  They have averaged roughly 6 years, about 5 years of expansion and 1 year of contraction.  The net result of all these ups and downs has been an average Gross Domestic Product2 growth rate of 3.24% a year since 19473.   But, since the end of our last recession in mid-2009, our growth has average only 2.10% annually, over 1/3 below its long-term average 3.  For...

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NEGATIVE INTEREST RATES

The Federal Reserve’s (FED) primary tool for influencing the economy has historically been interest rates.  If inflation rises too fast or the economy starts to overheat, the FED raises interest rates to make borrowing and spending more costly to slow demand and allow activity to return to normal.  And, if growth becomes too slow or if a recession appears on the horizon, the FED lowers interest rates to stimulate demand and return growth to normal.  So, what rate of growth is normal? From 1947 to 2015, U.S. Gross Domestic Product (GDP)1 grew at an average compound rate of 3.24% annually. ...

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