The Real Cost of Funding Your Retirement Entirely with a 401(k)

You work hard to save money on a tax-deferred basis so you will have more money after tax.  Then you go to retire and have to pay tax on 100 percent of the money you take out of the 401(k).  So if you thought paying taxes on your annual income was horrible, wait until retirement if all you’ve planned to retire on is a 401(k) or IRA!  Just because the amount you take out as income during retirement is smaller, doesn’t mean you will be in a lower tax bracket.

This illustration sums up the frustration of a tax-deferred retirement account. As you save money into a 401(k), the annual fees are large and loads for early withdrawals will cost even more money. In addition, the market risks cause losses 4 out of 7 years on average.  How is it possible to have enough money for retirement?    

Now, let’s assume that even with all the leaks that are possible with a tax-deferred account such as the fees, market risks, and penalties, you have been able to accumulate a good sum of money for retirement.  When you start taking income, this large sum is wholly taxed, 100 percent! Since you deferred your taxes, now you have a much larger number to pay taxes on. I ask: why would anyone fund their entire retirement using a 401(k) or IRA? It makes no sense. Of course, if your employer is willing to offer matching contributions, then a 401(k) can be one way to help build a retirement, but to rely solely on this kind of investment is foolish in my opinion.

Take a look at the above illustration one more time and ask yourself, “Does it make sense to defer my income taxes?” By deferring your income taxes, you subject all your money to fees, load, market risks and penalties over 40 years.  This cost can eat up all tax savings.  And when you turn on income, now you pay much more in taxes than ever before.  With few tax deductions, you might struggle to have enough retirement income to live on.  Please consider other options than the 401(k) or an IRA. I have loads of information to share with you on all the grand possibilities for retirement you should consider. Contact me today:  

Tax Rates May be Lowered… Think about Converting 401(k)s to Roths

If the Trump administration ends up getting taxes lowered, consider converting all IRA and 401(k) savings over to a Roth IRA.  The tax hit today will allow all future growth to be taken out as tax free!

Here are two observations about this advice: 

First, when you take income during retirement from a Roth IRA, you do not pay income tax on it. And this income does not force your Social Security benefits to be included for income tax purposes.  Withdrawals on 401(k) funds, on the other hand, usually force a Social Security benefits to be taxed with a potential $5,000 tax hit since 401(k) withdrawals count towards the earnings formula for Social Security.  Roth IRA withdrawals do not count in that equation so there’s no hit!

Second, when you pay the tax on the Roth IRA conversion today, you or your loved ones don’t have to pay tax on the withdrawals later. A 401(k) is tax-deferred so this means your spouse or kids will have to pay taxes on those withdrawals, or yourself, at a time when you’re on a fixed income, with not near so many deductions as you can take during your working years seeing as your house will probably be paid off and your kids will be grown.  To see what a huge burden  this can be, understand that the taxes you will pay in retirement on the  401(k) payout will be at least SIX times what you will pay in taxes on a Roth conversion now.

Example:  You  have $207,000 in an existing 401(k) and over the next 15 years between now and retirement you contribute  $6,000 a year into the account and it earns 5% interest, which will equal an additional $129,000; at retirement you have $337,000. Take this $337,000 and pay it out over 35 years for yourself or spouse or children and it will be worth $753,000.  Taxes on this total will equal $188,000.  If you converted this $207,000 to a Roth IRA instead and deposited the $6,000 a year into the Roth the tax you will pay is only $28,000.  Compare you paying $28,000 or $188,000, which do you think is better?  The multiplier in this case is 6.7 times!!

If the Trump administration gets taxes lowered, run, don’t walk to convert all tax-deferred accounts to a Roth.  More coming in the near future about how this will impact each of us.  But in short, lower taxes will indeed spur the economy and change millions of people’s lives so that they have surplus money to save.

Retirement Can be Like a Rose, Depending on How You Hold It

A rose is beautiful and we all enjoy them to celebrate special occasions.  But roses have thorns — sometimes we can prick ourselves if we aren’t careful.  Retirement is just the same.  We can enjoy retirement if we hold it just right, but if we refuse to prepare, the thorns we will experience in retirement can cause some real pain.

Here are some of those thorns to consider:

  • Of all people who filed bankruptcy in 1991, 21% were older than age 65. Today that number has grown to 28%.  This destroys credit and prevents ability to borrow money for needed items. If debt levels are really high before retirement age, this can be a real thorn to manage after age 65.
  • Some parents try to help their children with student loans by co-signing on federally insured loans. Later, if the child doesn’t get employment that earns enough money, the parents end up paying on the loan.  This can be a real thorn when it comes to retirement.
  • Another potential thorn in retirement is higher taxes. No doubt you have been taught to save money in a 401(k) or other tax-deferred savings program throughout your working years. Supposedly you will be in a lower tax bracket in retirement years so paying all those deferred taxes in retirement will be cheaper than paying them during working years. But it has been my experience working with thousands of clients that this simply isn’t the case. People in retirement usually pay much  higher income tax than when working because they don’t have any deductions!
  • Another thorn that can cause real pain in retirement is waiting too long to start saving for it.  If you started working at age 25 but did not form a habit of saving until age 55, this could potentially pain you every day of your life in retirement.
  • Having to work until age 80, because you don’t have enough money to retire, can be another real problem.  Maybe you like to work and you don’t mind it. But that’s different from being forced to work. And what if you don’t have the health to do so?
  • What about the fear of running out of money in retirement, which oddly enough, is a much greater fear than dying? I’m sure the reason is that it’s hard to cut spending down at a time we have more free time to spend.  Statistics show we spend more when we first retire than when working.  Apparently it takes a few years to adjust to the new income.
  • The thorn of inflation is real.  It has hurt so many retirement-aged people as their fixed expenses increase while their income does not.
  • The final thorn that can turn a beautiful retirement into a thorny nightmare is the need for dental, vision, hearing and for long-term or hospice care.  The huge prick here is that the costs can exceed your entire savings for retirement, and this might leave a surviving spouse destitute and on welfare.  A HealthView Services study in 2016 shows that the cost for all these elderly care service for a couple age 65+ will be $377,000 during their retirement.

To create a beautiful retirement with minimal thorns, get in touch with a financial coach who can teach you how to deal with each of the things I have discussed above. Contact me today:

When Did the Concept of “Retirement” Come to Be?

As you can well imagine, the idea of “retirement” did not exist in Roman times, nor medieval times, and certainly not when Pilgrims discovered America.  What about during the days of Lewis & Clark?  Or when the wild West was being settled?  History teaches us that a Roman peasant had to fight for food every day of their life.  A peasant could not even fathom taking life easy, sitting back to watch the evening news, or going out to eat and taking in a movie. How could an English Lord even conceive of “retiring?” He had to manage a kingdom and train new knights to protect him and his vassal serfs.

Some examples of newly created words, along with the idea of “retirement” in the last 100 years include:

  • Internet
  • World wide web
  • iPhone
  • Light bulb
  • Polyester
  • DVD
  • Contact lens

We have seen so many advances in technology and medical care in the last century that we have a lot more time on our hands than anyone born before the turn of the last century. That extension of life plus all that time we have available has been the reason the idea of retirement even exists.  “Retirement” is a new concept, only around since just before World War II broke out. Up until 1920, most people died before they reached the age of 60, so retirement wasn’t even an option.  When people started to live past age 65, some elderly folks started to save money for when they could no longer work, and thus the concept of retirement was born.

Four problems came along with this new concept. The first problem is outliving your income. Today 92 percent of everyone who is retired is totally dependent upon their Social Security benefit.

A second huge problem is inflation.  Just use your Web browser to see what one gallon of milk cost 20 years ago and you will be shocked.  You will most likely need to double the money you think is needed at retirement, because of inflation.

A third problem is continual taxation.  As you take money from you retirement savings plan to live, this income is taxed and can cause Social Security benefits to be subject to income tax as well.

A fourth gigantic problem is the cost of medical, long-term care and nursing home expenses.  The national average shows costs for a retired couple for medical/nursing care is $250,000 before they die.  This kind of cost is eating up all possible savings most people manage to squirrel away for retirement.  When all resources have been exhausted, the surviving spouse becomes destitute and is classified as being on welfare.

Considering these four problems, now is the time to decide what “retirement” means to you and whether you will be able to make that vision a reality. You have heard about the importance of planning for retirement your entire life, while those who lived before 1920 did not even have an inclination of what that meant. Before it’s too late, define what you want to happen when you reach age 65 because unlike your grandpa and great grandpa you will likely live longer than 60 years, so you will need to be prepared for that long life and how you want to live it.  It’s never too late to get going on this.  Go to and sign up for the Basic online training package and see for yourself how much money you need to be saving for retirement, or calculate how long your money will last. For more help, contact me directly:

What Is a True Financial Coach and How Do They Differ from and Adviser?

Many people confuse financial coaches with a financial adviser. These are two very different animals that need distinguishing.

Financial Coach:  A true financial coach focuses on your knowledge, your habits, and your ability to make wise decisions.  They don’t superimpose their feelings upon you.  A true financial coach knows that each person is unique with different goals, different attitudes about money, different challenges with math, and different strengths/weaknesses.  A true financial coach will know how to strengthen your where you are weak.

Financial Planner or Adviser:  This person is most often selling a product.  A financial adviser wants to profit on the money you have already accumulated.  The problem is that this is not what most people actually need.  Most people need and want to know how to create the money in the first place and then how to manage it wisely, perhaps with the help of a financial adviser, once they acquire it.

Think about how a salesman wishes to make money.  They sign up with an institution and then submit to their training.  What kind of training will that be?  Will it be training on five other competitor products so they can sell for them as well?  Absurd, not ever!  This employer wants to train you on his or her own products.  In the Time and Moneycase of a financial adviser, who are truly not a lot more than sales representative, they are encouraged to acquire knowledge and even
seek degrees like Certified Financial Adviser, to show the public that they are knowledgeable.  All of this effort by the sales representative can be helpful to you with a small part of the puzzle, but they very rarely have all the answers to every part of your financial life.  Have you ever thought about asking a financial adviser about what to do about your overspending? Of course not, they wouldn’t be likely to have much information about how to help you with this, and even if they did, this is not what they’re paid to do. What about how to get out of debt, or to create a passive income from better managing  your own money? They wouldn’t know the first place to start helping you with these important matters.  Where they can sometimes help is in what to do with extra money you have created, but that’s really where their “advising” ends.    

Here is the real difference between a coach and an adviser.  A coach helps you with problems you are having with managing your money and your emotions. People have lots of emotions surrounding money. The products financial advisers sell have very little to do with how to manage emotions and get in control on a grassroots level. They don’t teach you principles of financial management, they only sell tools that can help you once you have money to manage. A coach, on the other hand, offers solutions on how to control spending, get out of all debt, save for retirement, and pay the right amount of taxes. If you don’t have someone who can teach you how to do all of these things (at the same time) then you aren’t getting advice from the right place.

Here is a test question to ask a sales representative to determine if they are an adviser or a coach: “What do you recommend I do?”  Then listen carefully as to how fast they go directly to a product that they think you need.  If they make a specific recommendation they are a financial adviser.  If they say, “Tell me more about what you are trying to accomplish, today and in the near future?”  Then they search out your true feelings and even coach you along these lines before identifying options.  A true coach will strengthen you until you are making good decisions. Once you are making better financial decisions, then you can talk about what to do with your money from there.  

There are huge differences between a coach and an adviser, but it will take some time interviewing and asking questions of these people before you will see  how they approach helping you.  Most likely you will find 1 out of 25 advisers that will serve you like a true coach will.  For true financial coaching without the pushing of products, visit

Your Financial Life is Like a Puzzle… How Well Are You Putting It Together?

Your financial life is much like a puzzle, there are pieces that must fit together neatly or there is no picture to see.  But how do you make sense of the puzzle if you don’t even know what it’s supposed to look like, or if you’re not sure what all the pieces are? Over 25 years ago, Alan Williams and I created the following financial assessment to help people ask the questions that help them see where they are financially right now and where they need to go. 

Please take this 12-question assessment available at the link below and see where you rank with your personal finances.   A score of 59, for example is “Fair,” meaning your puzzle is partially put together, but needs improvements for sure.

Money Mastery Financial Assessment

It is wise for you to take this assessment at least once a year.  Compare you score with last year’s and see how much you have progressed.  Then take notes on where to improve and after six months take this assessment again.  Watch yourself grow and develop into a truly principle-centered money manager.

Why is it so hard for anyone of us to check ourselves against a standard of excellence?  It is hard emotionally, plus many of us want what we want and spend anything to get it.  But if you will learn to control your emotional urges, it will make you a fortune.   It isn’t hard to get in control financially — wealth on ANY income is possible for anybody, it just takes being willing to see yourself as you truly are right now so you can make improvements going forward.  For more information on other tools and techniques to get in complete control financially and put your puzzle together so it finally makes sense visit,

More Ideas on What to Do with “Old” 401(k) Money…

As noted in my last post, “How Old 401(k) Funds Can Get You Out of Debt Quicker,” many people change employment and still have money sitting in an “old” 401(k) they set up with their previous employer.  In my last post, I noted that this money can be used to pay off high-interest-rate debt, such as credit cards.

Here are some additional options to think about in terms of how to use this money instead of leaving it behind where is doing very little to benefit you today:

Option 1:  Roll this 401(k) money over into an IRA that you control.  Put it where you might get a good rate of return and have little or no risk.  Make sure you keep control of this account and can take the money out as needed.  Of course there will be a 10 percent penalty to pay if you do withdraw from an IRA before age 59.5, but that does not apply to the 72(t) tax rule. This ruling allows you to retire this plan (meaning you no longer contribute to it and only take the earnings from it over your life expectancy, usually age 84) without incurring a penalty. 

So, for example, if are say age 44 and have $100,000 in an account you retire, you will receive $3,365 per year without any penalty. CAUTION:  Once you select this option, you cannot change it  until age 59.5.  This example is simplified, so check with your tax adviser on how this best fits your circumstances.  There are places to put the $3,365 each year that can make you around 4 percent interest per year. Contact me for more details: So for this example, this means that when you reach age 59.5, all the money you started the account is still there, as you only took the earnings when you took the 72(t) option.

Option 2:  Roll the 401(k) money over into your own IRA that you control, then convert some portion of this amount once a year to a Roth IRA.  After five years, the principal amount you placed into the Roth IRA can be taken out without a penalty.  Check with your tax adviser first before taking this option to make sure you know all the rules associated with it, but in general this is another great way to get money out of an old 401(k) without paying a 10 percent penalty.

Option 3:  Roll the 401(k) money over into your own “self-directed” IRA.  There are extra fees you pay to the trustee of these kind of plans, but they allow you flexibility on where to invest and manage your money.

These ideas are for the purpose of giving your alternatives to leaving your money in an old 401(k) or IRA.  By being creative you can double the amount of money you might otherwise have if you just leave it where it is. For more information on these options feel free to email me:

Tax Preparation Made Easy

Here are 4 easy steps I wanted to share with you for making it easy to have your 2016 taxes prepared:

1. Gather your forms.  Be sure you know where your W-2, 1099, 1098 and other forms are.  It’s also important to understand what forms you will use to prepare your taxes or have others prepare them.  Search for information on the proper forms to use based on your circumstances. I think it’s important that you are engaged in this process, rather than just handing a shoebox full of receipts and other papers to the tax preparer to sort through. In my experience this professional certainly won’t be happy with you and may even charge you extra. Seriously, organize your information and know for yourself what your income and expenses are so you are educated.  Sandy Botkin, a well known tax attorney and CPA, says, “The seven most expensive words are ‘My tax accountant takes care of my taxes.’”   Stay in control of your own finances, money and taxes.  It could be worth as much as $2,000 each year. 

2. Decide how you should file.  Tax software is available and of course professionals can help. Search online to get help on how to prepare your taxes.  If your taxes are simple and you have no business activities recorded, then it can be inexpensive to hire someone rather than doing it yourself.  I have always prepared my own returns, then I hire a professional to check what I have done. This has been the most cost efficient method for me as it saves on the hourly rate paid a professional to do your taxes. Plus, I have always found that using a professional improves my situation and I make the necessary changes for the following year.

3. Determine when to file.  This year, April 18 is the tax filing deadline.  If you file early, you still have time to pay any balance owed up and until April 18.  Remember that when you extend your tax filing, it doesn’t extend your need to pay.   All money owed needs to be paid by April 18 or you will have to work out a payment plan with the IRS and this will cost you extra money in interest and penalties.  

4. Get organized for next year. Since you just finished preparing your 2016 returns, you learned some things about your organization.  Identify those helpful items for next year and implement them now.  As the years come and go you will get better and better at being organized.  

For more information on how to pay the proper amount of taxes, contact me:

Do You Need a Financial Parachute?

If you ever need a parachute, and don’t have one, you will never need one again.  Now apply this to your retirement.  If you don’t have a retirement, and you are arriving at that age in 5 years, you won’t have time to get one before it’s too late.

Here are national statistics to consider as you review your need for a financial parachute. 

First, the average amount of money saved in all 401(k)’s is $5,000.  ‘

Second, only 28% of employees who have access to a 401(k) actually deposit any money into it. 

Third, for those reaching retirement age of 65, they have assets totaling only $60,000. 

Fourth, 10,000 people each and every day are turning age 65 for the next 14 years.  

Okay, so what if you are nearing retirement age and you don’t have that “financial parachute?” Don’t panic, it’s not everlastingly too late, it’s just time to get serious… NOW! Everyone can improve their retirement income, no matter how late in the game, no matter how little the money.  Some things can be done to at least get a small parachute.  Please go to and signup for the Select program, then complete the retirement worksheet. Then email your questions using the “ask a coach” feature within the online training.  This will be the best financial decision you make in your life.

Answers to Important Questions You Need to Know for Retirement…

What follows are 9 questions centered around my experience over four decades of helping people plan for retirement.  They are varied and don’t necessarily hook together, but they are quick and to the point.  See if they help you.  

  1. Are people shocked with taxes to be paid when they retire?  Yes, and no.  Some people have not accumulated very much money for retirement so taxes will not be an issue.  But for those who have saved all their money into a 401(k) plan, they will see taxes going from 15% to 25% when they add their Social Security benefits on top of earnings.
  2. What happens to people’s retirement funds when they reach age 70 Once a person reaches age 70.5 years old, they are required to take money out of all deferred accounts, like a 401(k).  This percent of balance grows as they get older so by age 80 it is close to 12% of the balance.
  3. Why should retired people stay below the 15% tax bracket?  Because this is the first level of tax, and it goes up to a higher bracket once a person reaches $75,000 annual income.  So if a person gets close to this level, it’s best to find a way to pay tax deductible items before the end of year so you don’t bump up into the 25% bracket.
  4. When should a person consider a Roth IRA?  Tax planning means to know where your level of income will be and convert funds from a deferred account into a Roth IRA years before you retire, and do it systematically so the amount you convert is low as you can get it, but still get the job done.
  5. Some folks have been able to save in a regular bank account, mutual funds and tax deferred accounts, like 401(k)s.  Where should they take their income at retirement from first?  It is best to even out your taxes over the years.  If all you do is defer everything, then at retirement and especially when age 70.5 arrives, the taxes will be much more than normal.  This really hurts to get to retirement and have to ask yourself, “Why didn’t anyone tell me about this before now?”
  6. What are some surprises most people find out at retirement People find they must have a spending plan (this is not a budget), or they will run out of money.  Up until retirement they could get along, wing-it a little because they might get a pay raise or a bonus or a large tax refund that gave them extra money to do fun things with.  But at retirement those extras go away unless you plan for them in your spending.
  7. What other surprises might someone find at retirement?  The biggest problem I see when people retire, then spend some money their first year, is that they find that within 7 years they will be totally out of money.  They kind of know this, but it hits them hard after the first year in retirement.
  8. What can a person do when they see they will run out of money in 7 years? They can slow their spending, get a part-time job making extra income, or sell an asset, and possibly get a reverse mortgage on their home to pull out extra money and turn this into income.  Many other ideas are available, but you will have to get creative. I suggest you contact me for some really great options that most other advisors will never tell you about: 
  9. Would you be willing to answer more questions that arise out of this retirement discussion Of course! It is hard for people to work at a job and learn all the rules about retirement.  They work hard and come home tired and the last thing they want to do is research tax code or call creditors. All I do is study various options surrounding the retirement decision so I can bring you lots of examples and ideas tailored to your specific situation so you won’t arrive at retirement broke, or run out of money in only a few years.  Call me or email:  (801) 292-1099, for a no-cost consultation.