Retirement Planning For Dummies

Matt Krantz is an investment writer with decades of experience writing for publications including Investor’s Business Daily, USA TODAY, and The Motley Fool. He’s the author or co-author of four For Dummies books, including Investing Online For Dummies, Fundamental Analysis For Dummies, and Investment Banking For Dummies.

Introduction 1

About This Book 2

Foolish Assumptions 2

Icons Used in This Book 2

Beyond the Book 3

Where to Go from Here 3

Part 1: Getting Started with Retirement Planning 5

Chapter 1: Retirement Planning Is Up to You 7

Blazing Your Own Retirement Plan 8

Measuring Your Lifespan 9

Social Security Administration’s Life Expectancy Calculator 10

Bankrate’s Life Expectancy Calculator 11

Living to 100 Life Expectancy Calculator 13

Retirement Planning Beginnings: The Pension 13

Changing Times: The 401(k) 14

Behold the power of the 401(k) 17

An opportunity to save 18

Social Security: The De Facto Safety Net 19

Chapter 2: Determining How Much You Spend 21

Finding Out Where Your Money Goes 22

Eyeing your expenses 22

Tracking your money’s every move 23

Spending guidelines 24

Measuring Your Spending 25

Using your credit card company or bank’s online resources 25

Diving into the world of third-party apps and online tools 27

Checking out other money-tracking options 30

Doing something with all this data 32

Putting Your Spending in Context 32

Using government statistics as a guide 32

Seeing how spending changes as you age 34

Improving Your Numbers 36

Figuring out if your latte is ruining your retirement 37

Finding easy ways to stop wasting money 38

Boosting your income with a side gig 39

Table of Contents iii

Chapter 3: Calculating How Much You Need to Retire 43

Getting to Know the 4 Percent Rule 44

How the 4 percent rule works 45

The magical power of the 4 percent rule 47

Shortcomings of the 4 percent rule 47

Using Online Retirement Calculators 51

Getting started 51

Exploring retirement calculators from mutual fund companies 54

Drilling in with detailed retirement calculators 56

Avoid gambling with retirement: Monte Carlo analysis 58

Understanding Why Starting Early Is Important 59

Compounding: The most powerful force in the universe 59

Inspiration to start retirement planning now 60

The race to $1 million: Doable if you start soon 61

Chapter 4: Choosing the Right Account 63

Retirement Planning in a Nutshell 63

Getting started 64

What about pensions and Social Security? 65

Things Change with SECURE Act 67

A Great Place to Start: 401(k)s 67

Advantages of 401(k) plans 67

Drawbacks of 401(k) plans 69

The Roth: An interesting twist on retirement savings 70

IRAs: A Cornerstone of Retirement Planning 71

Advantages of IRA plans 71

Drawbacks of IRA plans 73

A few IRA odds and ends 75

Self-Employed Plans 75

The spectacular SEP-IRA 76

The 401(k) for one: A one-participant 401(k) 77

Keeping it SIMPLE 77

What’s the Catch? 78

Tax-deferred isn’t tax-free 78

Beware the 10 percent early withdrawal penalty 79

Don’t mortgage your future: Retirement plan loans 79

Chapter 5: Gauging Your Appetite for Risk 81

Getting a Handle on Your Risk Tolerance 82

Determining your investor type 82

Understanding risk tolerance 84

Looking at risk tolerance differently 85

Using risk-assessment tools 86

The ABCs of Asset Classes 88

Putting stocks in a box 89

Adding bonds 91

Including a few other asset classes 92

Seeing how risk tolerance and returns work together 93

Chapter 6: Opening Your Accounts 95

Getting Your 401(k) Up and Running 96

Understanding target-date funds 98

Knowing the people involved in your 401(k) 99

Getting familiar with your 401(k) plan 99

Plugging into Your IRA 100

Knowing what you’d like to own 100

Choosing someone to handle your IRA 101

Mutual fund companies 101

Traditional and discount online brokerages 104

Robo-advisors 107

Connecting with a Financial Planner 112

Finding a financial planner 113

Deciding what is right for you 115

Part 2: Using Online Resources 117

Chapter 7: Managing and Optimizing Your 401(k) 119

Getting Online 120

Registering for 401(k) access 120

Getting to know your 401(k) tools 124

Checking your performance 125

Checking Your Portfolio Allocation 127

Understanding the key asset classes 128

Looking at your current mix without using a calculator 130

Finding your optimal asset class mix 132

Changing your asset allocation 133

Powering Your 401(k) with Contributions 135

Inspecting your current contribution level 135

Deciding how much to contribute 136

Seeing the power of putting more away 137

Discovering Other Nifty Aspects of Your 401(k) Plan Site 138

Locating information on plan loans and withdrawals 138

Digging into the statements 139

Finding various plan documents 140

Chapter 8: Taking Your IRA to the Next Level 141

Getting Online with Your IRA Provider 142

Opening your IRA account 142

Logging in and looking around 143

Understanding your portfolio holdings 145

Checking Your Portfolio Asset Allocation 145

Understanding correlation 146

Viewing your asset allocation on your provider’s website 147

Enhancing your asset allocation 148

Understanding Your IRA Contributions 152

Setting up IRA deposits 152

Roll over Beethoven: IRA rollovers 154

Funding an IRA with a Roth conversion 154

Taking Money out of Your IRA 155

Getting money out early: 72(t) distributions 156

Taking your required minimum distribution 156

Setting up a beneficiary 157

A word about inherited IRAs 158

Chapter 9: Optimizing Your Retirement with Third-Party Offerings 159

Understanding Fees 160

Improving success with lower fees 160

Knowing the types of fees 160

Uncovering the shocking truth about fees 162

Examining Your Portfolio Using Morningstar 163

Pulling up individual funds that you own 163

Putting your entire portfolio to the test 170

Grading Your Retirement Plans in Other Ways 173

Getting up close and personal with Empower 174

Going mobile with Quicken Simplifi 176

Chapter 10: Digging into Social Security 177

Discovering All the Benefits of Social Security 178

Disability coverage (SSDI): The forgotten bonus of Social Security 178

Medicare for All 180

Survivors benefits 181

Retirement benefits 181

Managing Social Security Information Online 183

Examining what you’re paying into Social Security 183

Signing up for and accessing Social Security information online 185

Understanding your history of Social Security credits 188

Planning for Social Security in Retirement 190

Claiming your Social Security benefit 191

Applying for benefits 193

Part 3: Maximizing Your Retirement Knowledge 195

Chapter 11: Balancing Other Needs with Retirement Savings 197

Cleaning Up Your Personal Balance Sheet 198

Building an emergency fund 199

Cutting loose the debt anchor 206

Opening a taxable brokerage account 211

Saving for a Home 212

How your retirement plans can help you buy a house 213

Knowing how much home you can afford 214

Budgeting for homeownership 216

Saving For College — If You Can 217

Why your college-savings help matters 218

Choosing a college-savings account 219

Choosing a 529 provider 220

Figuring out how much you should save 221

Chapter 12: Fine-Tuning Your Asset Allocation 223

Exploring Stock Strategies 224

Understanding small versus large companies 225

Knowing where your money is: international, global, and emerging markets 227

Trusting real estate investment trusts 229

Diving for Income 231

Getting to know bonds better 232

Going to town with municipal bonds 234

Using Morningstar to study bonds 235

It’s Easy Being Green: The Rise of ESG 237

Deciding whether to include ESG in your retirement plan 238

Understanding ESG investments 239

Buying into an ESG 240

Chapter 13: Keeping Your Retirement on Track 243

Tracking Your Portfolio’s Health 244

Measuring returns and asset allocation 245

Modifying your plan 251

Tracking and Updating Your Goals 253

Assessing your goals 253

Seeing if your goals change your plans 254

Tracking retirement progress and milestones 259

Chapter 14: Gearing Up for Retirement 261

Creating a Retirement Budget 262

Test-driving your budget 262

Keeping your stock exposure 264

Waiting until 70 to collect Social Security 264

Having a healthcare plan 265

Knowing the bucket strategy 266

Working longer 266

Thinking about Annuities 268

Understanding the types of annuities 269

Finding an immediate annuity 271

Running sample annuity numbers 273

Unlocking a Goldmine: Reverse Mortgage 276

Understanding reverse mortgages 276

Understanding the drawbacks of reverse mortgages 277

Using a reverse mortgage 278

Chapter 15: Understanding Pensions 281

Checking a Private Pension’s Funding 282

Understanding the Problems with Public Pensions 283

Understanding Pensions Inside-Out 286

Choosing a lump sum versus ongoing payments 286

Choosing single life versus survivor 288

Managing Your Pension 291

Using online tools 291

Calculating the value of a lump sum payment 292

Rolling over a pension 293

Chapter 16: Getting Insurance 297

Building a Health Insurance Plan 298

Unlocking the health savings account 298

Understanding Medicare supplemental plans 302

Exploring the exchanges 304

Considering long-term care insurance 305

Defending Your Money with Insurance 307

Checking property and casualty coverages 307

Getting ready for a rainy day: Umbrella insurance 308

Protecting your family with life insurance 310

Part 4: the Part of Tens 315

Chapter 17: Top Ten Retirement Mistakes 317

Waiting to Save 317

Ignoring Fees 318

Not Securing Your Information 318

Prioritizing College Savings Over Retirement 319

Not Diversifying Your Portfolio 319

Waiting for the “Right Time” to Invest 319

Having Inadequate Insurance 319

Taking Money from Your Accounts Early 320

Not Checking Your Social Security Benefit 320

Not Thinking about Income 320

Chapter 18: Top Ten Retirement Questions 321

How Much Money Do I Need? 321

Is Medicare Enough? 322

What Will I Do with My Free Time? 322

Will I Run Out of Money? 323

Should I Have a Roth or Traditional IRA? 323

How Good Is My 401(k)? 324

What’s an RMD? 324

Can Retirement Rules Change? 324

What Can I Do If I’m Near Retirement Age and Don’t Have a Plan? 325

Do I Need a Financial Advisor? 326

Index 327