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The problem with using the 4% rule to plan for retirement Quartz – Quartz

Posted: March 8, 2020 at 10:50 am

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Heres a quick calculation that can show you whether your finances are ready for you to retire: Take your last 12 months of spending and multiply it by 25. If your investment portfolio exceeds the product, youve crossed the threshold of financial freedom. If not, keep socking away until you get there.

This quick math is an offshoot of the 4% rule, a centerpiece of conversations between people on the cusp of retirement and their financial planners. If a potential retiree has assets of $1 million, they can retire safely if their annual spending is less than $40,000 a year (i.e $1 million x 4% = $40,000).

Two decades ago, thats all a 65-year-old needed to think about before cashing in on their hard-earned social security and pensions. But today, retirement itself has become more fickle, the result of fraying social safety nets, the changing employee-employer contract, and spillover effects from the global financial crisis; according to Gallup the average projected retirement age is 66, up from 60 in the 1990s.

Whats more, the glory of retirement is no longer the exclusive domain of the twilight years. Now, some people in their 30s and 40s aspire to spend most of their lives not working, and need their finances to be up to the task. This is the appeal of the Financial Independence, Retire Early (FIRE) movement, whose disciples range from college kids to Google engineers, unified in their aim to save at least 50% of their income to reclaim their retirement destiny.

So should you base your anticipated retirement on the 4% rule? Does it matter whether youre planning to retire when youre 35 or 65? What are the assumptions that go into the rule and where could you get tripped up?

A typical retirement account is comprised of financial assets such as stocks, bonds, mutual funds, and bank deposits. These financial assets are held primarily in 401(k)s and brokerage accounts. Over the course of a persons career, the theory holds, both pools of assets should growfirst from additional contributions (such as automatic deductions into your 401(k)retirement account), and second from the increase in their value (i.e. stock prices going up).

If all goes according to plan, once you leave the workforce, you can live off the interest and dividends these assets produce, or you can sell them off little by little as a substitute for the income you once earned.

And heres where the 4% rule kicks in. Lets walk through the math:

You can also flip the calculation around by taking something that you knowyour annual spendingand seeing how much money youd need today (i.e. your hypothetical portfolio) to be able to retire. Heres the calculation in reverse:

The 4% rule is officially known as the safe withdrawal rate (SWR). First defined in the 1994 article Determining withdrawal rates using historical data,financial planner Bill Bengen used historical data to show that a retiree would be safe (i.e. they would not outlive their savings, according to actuarial estimates of life expectancies) if they spent no more than 4.2% of their portfolio each year.

Three professorsPhilip L. Cooley, Carl M. Hubbard, and Daniel T. Walzfrom Trinity University corroborated Bengens findings. In 1998, the trio published a study that used slightly different portfolios (different percentages of stocks and bonds, or other assumptions about a persons longevity) to arrive at a similar conclusion: a 4% withdrawal rate gives you a 95% chance of being safe.

Twenty years later, the Trinity Study, the 4% rule, and safe withdrawal rates are used interchangeably among people in retirement and those looking to retire. Mr. Money Mustache (ne Peter Adeney), the FIRE movements de facto chief evangelist, argues in a blog post: Far from being a risky proposition, assuming 4% safe withdrawal rate is actually the most conservative method of retirement saving I could possibly recommend.

The studies behind the 4% rule assume that your retirement will last for up to 30 years. If you retire in your early 60s and live to about 80, that feels like a safe bet. But it can be hard to predict how long youll live; though the average life expectancy is 76 for men and 81 for women in the US, we all know (or have at least heard of) exceptions who have lived well into into their 90s. For those privileged enough to live extra long lives, the rule would fail, possibly putting their financial stability at risk.

Now imagine looking to FIRE in your 30s. Simply because of their age, younger folks have a higher likelihood of reaping the benefits of medical breakthroughs that could extend life expectancies. How could you project your future expenses if you become the first person to live to age 150?

Another critique of the 4% rule is that life is messy, complicated, and unpredictable. No matter your age, its simply unrealistic to assume that ones spending stays constant over time. Add to that the variability of healthcare costsone researcher found that someone earning an average wage in 1958 had to work nearly 15 days to cover a particular medical expense, while a worker in 2012 would need 58 days worth of wagesand it seems absurd to assume that one number could so much of your future financial livelihood. Furthermore, the size and long-term viability of entitlement programs such as Medicare and social security are not a guarantee. Even for people retiring now, relying too heavily on these programs to take care of you in retirement is no longer the safe bet it once was.

Rising medical bills are part of why retirement can be so expensive. In the 2013 paper Estimating the true cost of retirement, David Blanchett, the head of retirement research atthe financial research firm Morningstar, observed that there appears to be a retirement spending smile whereby the expenditures actually decrease in real terms for retirees throughout retirement and then increase toward the end driven by a significant increase in relative healthcare spending exposures.

But if youre looking to retire in your 30s and kids are a part of your future, the dramatic uptick in costs for things like education and healthcare might not leave you smiling at all. In 2017, the US Department of Agriculture estimated the cost of raising a child at $233,610excluding the cost of education (private college cost an average of $35,676 per year in 2019). Conversely, pursuing a DINK (dual income, no kids) lifestyle wouldmake your spending more predictable.

If you have that gnawing feeling that the viability of the 4% rule is left over from an era in which we could count on systems not to fail, you wouldnt be alone. Professional investors, academics, and policy-makers have been debating if the combination of the 2008financial crisis,along withglobal central banks aggressive monetary policy (focused on keeping interest rates historically low to stimulate economic growth) has permanently changed the future return prospects of both stocks and bonds.

One of the anchors of any retirement portfolio is the US Treasury bond, which pays interest and principal (i.e. the amount you invested in the Treasury bond)with the backing of the US government. The bonds have the highest credit rating of any investment in the world, which means the chances of not getting your payments are extremely low. That means theyre a great source of income for retirees.

When Bengen introduced the 4% rule 25 years ago, a three-month US government bond paid interest at a rate of 4% which means you could pretty much guarantee the 4% needed for the rule to hold, with low risk of losing your invested money (as it would require the US government go bankrupt). Therefore, your spending could be easily covered by a very low risk investment. Today, that same bond pays a paltry 0.04%, forcing retirees to invest in far riskier instruments to clear the 4% threshold.

Those risky investments usually take the form of stocks, which zig, zag, and occasionally crash. Therefore, the timing of your retirement also impacts the validity of the 4% rule. If you started your retirement the day before the global financial crisis, youd be hit with a double whammy: Youd have to sell investments that have lost money, with no chance for them to recover their value. Investors refer to this as sequencing riskthe sequence of your returns affects your outcomes.

In their 2013 paper The 4 Percent Rule is Not Safe in a Low-Yield World, Blanchett, alongside retirement researchers Michael Finke and Wade Pfau, argue that the success of the 4% rule in the US may be a historical anomaly and it cannot be treated as a safe initial withdrawal rate in todays low interest rate environment. Today, this may be even more true.

Regardless of your age, planning your retirement around a single number is a risky proposition. The 4% rule is a great starting point, but assessing the likelihood of not outliving your retirement funds requires many more assumptions and calculations, then evaluating these assumptions under extreme circumstances (i.e. you live 10 years longer than the average life expectancy).

Plus, as you look further into the future, predictions begin losing their accuracy. Its quite easy for Tim Cook to predict how many iPhones hell sell tomorrow. But how about in ten years? Cook could probably still make an educated guess by extrapolating from current trends, but wed all acknowledge that many unknowns could dictate the final outcome. Humans, what with their surprise expenses, are even less predictable.

For FIREees, the 4% rule is a decent starting point, but it shouldnt be where their retirement preparation ends. So what makes Peter Adeney (aka Mr. Money Mustache), who retired at age 30 with a family to support, come down so confident in the the 4% rule? In his post Its all about the safety margin, Adney argues that FIRE itself has given him the flexibility and resilience to survive any potential negative financial and spending surprises arising from retiring early.

Adney believes that retiring at a young age afforded him the option to change his spending habits, such as moving to a smaller house or take fewer trips, or even re-enter the workforce to earn some additional income. There could also be positive surprises, as Adney doesnt factor social security into his 4% calculation. Should it still exist in 30 years, it would be all gravy for his family.

To anybody evaluating their retirement, the 4% rule is a decent starting point, but fails to paint the entire picture. But whether youre four or forty years from retirement, its a quick calculation that can determine if youre on the right path.

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The problem with using the 4% rule to plan for retirement Quartz - Quartz

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Is It Possible to Retire by 40? – The Motley Fool

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These days, a large number of workers are exiting the workforce extremely early -- as early as age 40, in fact. Retiring at 40 is far from easy, but it is possible. You just need to commit to that goal -- and make sure the sacrifice to get there is worth it.

If your goal is to leave the workforce by age 40, you'll need to start saving for retirement the moment you start collecting a paycheck. You'll also need to house your savings strategically to avoid being penalized for tapping your nest egg prematurely.

Though there are tax benefits to funding a 401(k) or IRA, in exchange, the IRS wants your money left alone until you turn 59 1/2. That's fine for most retirees, but it's not going to work if your goal is to stop working by the time you turn 40. Therefore, think about where you'll put your money. A traditional brokerage account may be your best bet, because that way, you'll get to invest your money to grow it into a larger sum, but you'll also maintain complete flexibility over your savings.


Now, let's talk about how much you need to save and invest to make retiring by age 40 possible. First, you'll have to figure out how much income you'll need to pay your basic living costs on a yearly basis. You'll also need to figure out what you'll do with your time once you retire at such a young age, and how much it will cost.

When you run those numbers, keep in mind that you'll need to pay for private health insurance or otherwise run the risks that come with not having coverage (a route that's certainly not recommended). It will be years before Medicare eligibility kicks in, so factor that expense into your budget.

Once you determine how much annual income you'll need if you were to retire at 40, you'll have to save for it. For a regular retirement -- one that begins in your 60s -- saving 15% to 20% of your earnings may suffice. For a super early retirement, you may need to save 50% of your income or more. But if you're willing to live well below your means throughout your working years, you could manage to sock away quite a large sum.

In fact, let's assume you save and invest aggressively between the ages of 22 and 40, so much so that your portfolio delivers an average yearly 8% return on your money (that's just a touch below the stock market's average). Here's what you stand to accumulate (note that the figures below are very slightly rounded upward):

Monthly Savings Amount

Total Accumulated Over 18 Years at an 8% Average Annual Return




$1.125 million


$1.35 million


$1.575 million


$1.8 million

Data source: author.

These numbers may paint an encouraging picture, but here are a couple of things to keep in mind:

Clearly, it's possible to exit the workforce by the time your 40thbirthday rolls around. But whether doing so is worth the sacrifice at hand is a different story.

Say you do need $1.8 million to retire at 40 and live comfortably, and you earn $100,000 a year. To do so would mean parting with more than half of your post-tax salary (remember, there are no tax breaks associated with a traditional brokerage account). That could mean never taking vacations, spending little to no money on leisure, and forcing yourself to live in a cramped studio apartment.

Maybe you're willing to do these things to retire when you want to, and that's totally fine. But if you don't want to go to such major extremes, consider a compromise. That could involve retiring a bit later in life but at an age that's still considered early -- say, 50 or 55. Or, it could mean switching careers at 40 so you're doing something that pays a lot less, but brings you a lot more satisfaction. There are different options to play around with, so your takeaway here is that while retiring by 40 is something that can be done, it may be not be the best choice for you.

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3 Things You Need to Do to Retire Early – The Motley Fool

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Is early retirement a goal of yours? It's something many people strive for. But retiring well ahead of your peers requires lots of planning and even a bit of sacrifice.

The good news? If you commit to that goal early on, it's more than doable, especially if you follow these three steps.

To retire early, you'll need to save money. And a good way to scrounge up that money is to live below your means. To that end, it helps to follow a budget -- one that gives you enough money to pay for essentials and enjoy modest luxuries but also ensures that you're carving out plenty of money for savings month after month.

If you're not used to following a budget, setting one up is easy. Open a spreadsheet and list your monthly expenses. Then, comb through your bank and credit card statements to see what those expenses typically cost you.

Add up your total monthly spending and compare that number to your earnings. If you have plenty of room left over to save money, you're golden. If not, you'll need to rethink some of your expenses so you're consistently able to sock money away for the future.


You're probably aware that debt is generally an unpleasant thing to have. But the more of it you rack up, the more money you'll throw away on interest -- money you could otherwise be putting into an IRA or 401(k) plan.

Now to be clear, if there's one type of debt you shouldn't shy away from, it's mortgage debt. Most people can't afford to buy a home outright, and with mortgage interest rates being relatively low, you're actually better off financing a home than putting down its entire purchase price and losing the opportunity to invest those funds. But aside from your mortgage and maybe a vehicle, you should aim to be perpetually debt-free.

The money you save each month by living modestly and steering clear of debt can go directly into retirement savings, and the more you're able to set aside month after month, the more feasible early retirement will be. But if you really want to increase your chances of getting to leave the workforce early, you'll need to invest your nest egg aggressively to fuel its growth. For the most part, that means loading up on stocks, especially when you're young.

If you go heavy on stocks so that your retirement portfolio generates an average annual 7% return (which is actually a few percentage points below the stock market's average), and you manage to sock away $600 a month over 35 years, you'll wind up with $995,000. That could very well be enough to leave the workforce a number of years early.

But watch what happens when you play it safe in your portfolio by focusing more on less lucrative investments like bonds. If you only see a 4% return in your retirement account, you'll wind up with $530,000, assuming that same monthly investment and time frame. That's not a small amount of money per se, but it may not be enough to let you leave the workforce several years ahead of schedule.

Though many people dream of early retirement, it doesn't always work out. To increase your chances of getting to end your career when you want to, live on a strict budget that allows you to save consistently, stay away from debt, and invest your nest egg wisely. It won't always be easy, but in the end, it will be well worth the effort.

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3 Things You Need to Do to Retire Early - The Motley Fool

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When (and How) to Tell Your Boss You’re Retiring – The Motley Fool

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Retirement isn't just a major change for you; it can also affect your employer in profound ways, especially if you're a key employee.

You don't want to leave on a bad note, so you should always be responsible about when and how you tell your employer that you plan to go. At the same time, you don't want to sound the alert too soon and jeopardize your prospects of leaving on your own schedule.

So, when is the right time to give your boss notice? It depends on your situation, but this advice will help you to make the right choice.

Image source: Getty Images.

You don't want your company to be left without someone to do your job, so you need to make sure you provide ample notice to advertise the position, conduct interviews, and find a new candidate.

The more specialized your knowledge and the higher up in the company you are, the longer a candidate search can take. Consider this when you decide to give notice. If you're in senior leadership or there aren't many people who do what you do, you may need to alert your boss several months early to allow sufficient time.

If it will take a long time to replace you, you don't have to worry much about your company trying to push you out the door before you're ready -- especially if your job is essential. So there's little harm in telling the company about your impending retirement early so it can find the right replacement.

The handoff to your replacement will go a lot easier if you're there to show the person the ropes. After all, you know your job better than anyone.

While it can take time to train your replacement, this can also make the last weeks of your work easier, since you have a backup who can start taking over some of your tasks as you transfer the necessary knowledge.

Your boss may have some specific things in mind to help make your exit from the workforce easier for everyone. This may involve finishing up a specific project you've been assigned to, helping search for your replacement, or delegating your duties to others on the staff.

By indicating your willingness to help make your departure easier, you can show you're a team player up to the very end.

Your departure may also have implications for your finances. For example, if you have unvested 401(k) contributions, you may need to meet certain requirements to be able to leave with your full employer matching funds. And if you haven't yet reached the age to qualify for Medicare, you may want to continue health insurance coverage through your employer under COBRA.

Make a list of the different ways that your retirement could impact your workplace benefits and retirement accounts and come prepared to address the issues so you can get the answers you need.

While you hopefully won't need to return to the workforce after retirement, it's still a good idea to retire the right way so you maintain a positive relationship with your former employer.

By following these tips, you can get your ducks in a row for the financial implications of your retirement and be sure you don't leave your company in the lurch with your departure.

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Looking for a Place to Golf in Retirement? Expand Your Horizons – The New York Times

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But home prices in Costa del Sol are high, and buyers, who are mostly from Europe, include royalty and celebrities. This is a very expensive place to buy a home, he said.

At Finca Cortesin, for example, the 57 villas set around its 18-hole golf course that have either four or five bedrooms and 70-foot-long pools have a starting price of $4 million. For golfers, Costa del Sols big advantage is the weather. Winters are sunny and mild so you can pretty much play golf year-round, Mr. Sens, of Golf magazine, said.

With its strategic location between Asia and Europe and in the heart of the Middle East, Dubai has become a coveted spot for golf homes in the last five years, said Mr. Kauffman, the golf analyst.

Dubai is the financial and cultural capital of the region and a Las Vegas equivalent in terms of restaurants and luxury shopping, he said. More recently, it has become a golfers haven and has some of the largest master-planned luxury golf communities in the world with courses built by top architects.

The roughly 2,800-acre Jumeirah Golf Estates is an example and includes 16 different living districts and two courses designed by the Australian golfer Greg Norman. Parks, walking trails and green spaces abound throughout the development, and each district has its own style and amenities.

Flame Tree Ridge, for one, is meant to evoke the feeling of being in the Tuscan countryside and has four- and five-bedroom villas with stone facades and terra-cotta roofs. The properties have views of the golf courses, large landscaped gardens and pools.

But Dubai is expensive. Mr. Kauffman said that pricing is akin to New York real estate.

The Dominican Republic is a prime destination in the Caribbean for golf-driven real estate, Mr. Sens said, and has at least a half dozen sizable golf developments.

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Coronavirus Hits a Nursing Home and a Retirement Complex in Seattle Area – The New York Times

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SEATTLE Days after a coronavirus outbreak emerged inside a nursing home in suburban Seattle, leaders at two other complexes that serve older residents in the region said on Friday that each of those facilities had a resident who had tested positive for the virus.

Washington State has seen more than 80 cases of the virus, including the first case reported by Starbucks on Friday night at one of its downtown Seattle stores, but the new cases were troubling because older people are seen as most vulnerable to the infection.

In Seattle, the Ida Culver House Ravenna senior living complex, which provides independent and assisted living to about 90 people, said that one of its residents tested positive on Friday, two days after the resident was taken to a hospital. A sign in the lobby restricted nonessential visitors from entering.

Residents of the senior living complex were being asked to stay in their apartments as much as possible, Nicole Francois, a spokeswoman for the complex, said. All activities have been canceled, she said, and meals were being brought to each apartment rather than being served in communal areas. All residents were being screened for signs of illness twice each day as a precaution.

No one else has shown signs of coronavirus, Ms. Francois said. As far as we know, this is an isolated case.

Twenty miles east, the Issaquah Nursing & Rehabilitation Center said on Friday that one of its residents tested positive for the virus after going to a hospital on Tuesday. The company said it had already put in place protocols to stop the spread of infections before the resident had gone to the hospital.

We have asked family and visitors not to visit our facility at this time, the center said in a statement.

The Seattle region has been on heightened alert with the spread of the coronavirus at Life Care Center in Kirkland, and officials were still grappling to control that outbreak while families have waited, frustrated by a rising death toll and lack of both information and coronavirus testing.

Officials in King County said that 15 more residents of Life Care had been taken to hospitals over the past day. Dow Constantine, the King County executive, said officials were working to help families who want to remove residents from Life Care and take them home with the necessary medical equipment.

For the families who say they are not being adequately communicated with, we hear you, Mr. Constantine said. We want to make sure everyone has the information and support they need in this time of crisis.

Because the virus can poses a significant threat to people who are older or have underlying health problems, local public health officials in the Seattle area have encouraged people 60 and older to stay home. Everyone in the county has been encouraged to telecommute rather than go to work.

Friday brought another round of restrictions around the area. The University of Washington, with 50,000 students, announced that it would move to remote learning. Emerald City Comic Con, a convention that draws tens of thousands of people each year, announced that it would postpone until the summer a gathering that was scheduled for next week. The chief federal judge in Seattle ordered the cancellation of all in-person federal court hearings in the western part of the state.

Starbucks said it shut down its store near the downtown Seattle Art Museum after learning Thursday night that an employee had received a diagnosis of coronavirus. The company said it closed the store for a deep clean but hoped to have the site open again soon.

Nursing homes and assisted living facilities have long been a place where infections can take hold with devastating consequences. This week, Vice President Mike Pence said 8,200 nursing facility inspectors, funded by the Centers for Medicare and Medicaid Services, would focus exclusively on infection control.

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Nearly 1 in 5 working women have nothing saved for retirement – CNBC

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When it comes to saving for retirement, many working women are falling short.

Almost one-fifth, or 19%, of working women have nothing saved for retirement, according to a new CNBC/SurveyMonkey Women at Work Survey. The poll surveyed 1,068 working women in the U.S. from Feb. 10-14.

"It's not because women don't save because they spend too much," said certified financial planner Avani Ramnani, who called the numbers "scary."

Instead, the problem stems from the fact that women still earn less than men, she said.

As of 2018, women earned 85% of what men make, according to a January Pew Research Center analysis.

"If you earned that much less and it's not like your expenses are any fewer that has a direct impact on the amount of money you have saved for your retirement," said Ramnani, director of financial planning and wealth management at Francis Financial in New York.

The survey also found that 14% didn't know how much money they had put away.

When it comes to race, black working women were less likely than their white counterparts to have nothing in retirement savings 14% versus 22%. Yet, 24% of black women didn't know how much they had saved, compared to 11% of white women.

The lack of knowledge around the amount in savings could have to do with fear about whether it is enough, according to Lazetta Rainey Braxton, a CFP and co-CEO of New York-based advisory firm 2050 Wealth Partners.

"Women are saying, 'I'm socking money away, I don't know if it's enough I'm just doing it,'" she said. "They don't know how to translate if it is enough."

If you haven't started saving for retirement yet, or are far behind, there are things you can do to get on track.

"Get on a program," Ramnani said. "Start with whatever you can. Ideally it's about 15% of your gross income, but just start somewhere."

Also, automate those savings and increase the amount saved every year.

"If the money doesn't hit your bank account, you won't spend it," she said.

If you have a 401(k) plan through work, find out if your employer matches your contributions. If so, at least contribute up to that amount so that your employer contributes, as well. If not, you are leaving money on the table.

Then, focus on your debt, said Braxton, a member of the CNBC Digital Financial Advisor Council.

Consolidate it into one low-interest credit card or loan. Take any money you save on payments into a cushion account, she advises.

As you get raises at work and possible bonuses, put those right into your cushion account, as well. The idea is to try to save at least three months' worth of living expenses.

"Challenge yourself for that first year," Braxton said.

As your financial life shapes up, increase your contributions to your 401(k) until you can reach the maximum allowed for the year: $19,500 for 2020, as well as an additional catch-up contribution of $6,500 if you are over age 50.

If you don't have a 401(k), open an individual retirement accountor a brokerage account and start contributing.

Women also tend to lack confidence around money, said Ramnani, whose firm specializes in working with women going through transitions.

That stems from a lack ofknowledge surrounding their finances, even though they are "super smart" with great careers, she explained.

More from Invest in You: Needle is moving on how millennial women save for retirement Suze Orman's retirement strategies for those over 50 Women must take 4 key steps to shore up retirement

So, start talking to people about their investments and how they are making their money work for them.

"We find that once they get that education and they get that platform to talk about money," Ramnani said."It makes them turn the corner and start looking at investments as a friend, an ally, which is what it is."

That lack of knowledge also may cause women to be very conservative when they invest, she said. They fear they'll lose money if they become aggressive.

Yet, women need to be more forceful because of the wage gap and because they generally are facing a longer lifespan than men, Ramnani said.

While you may hear that you need to have $1 million for retirement, it really depends on a number of things.

Don't let that number scare you. Instead, just try to save 15% of your gross earnings, Ramnani said. Once you get comfortable with that, then look to figure out your number.

The best step to take is to hire a financial advisor, she said. While there are those who focus on high net-worth individuals, there are also many who cater to "regular working people."

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Here are 3 ways taxes could be sabotaging your retirement income – USA TODAY

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Katie Brockman, The Motley Fool Published 3:15 p.m. ET March 3, 2020

Millennials are better at managing money than older generations. They started saving for retirement at 24 on average, well before Gen X and Boomers. USA TODAY

Even in retirement, you likely won't be able to escape Uncle Sam taking a chunk of your earnings. If you're not preparing for taxes in retirement, your savings likely won't go as far as you think they will. You may owe thousands of dollars in taxes each year, depending on what your retirement income looks like, and a hefty tax bill can make it harder to enjoy your senior years comfortably.

Fortunately, a little planning can go a long way. By understanding how taxes will affect your retirement income, you can prepare for them ahead of time to ensure you'll still have enough money to make ends meet. As you're saving for the future, consider these three ways taxes could affect your income during retirement.

Survey: Only 1 in 3 older Americans are using this smart trick to beef up their savings

Social Security: You get only one chance to use this little-known way to boost benefits

If you've stashed money in a 401(k) or traditional IRA, you'll owe income taxes on those withdrawals in retirement. The only way to avoid paying taxes on retirement account withdrawals is to invest in a Roth IRA. With a 401(k) or traditional IRA, your contributions are tax-deductible upfront. But with a Roth IRA, you'll pay taxes when you make the initial contributions -- so your withdrawals will be tax-free.

Some workers may have savings in multiple types of accounts. In that case, it's important to come up with a withdrawal strategy to minimize your tax bill in retirement.

For example, if there are years of retirement when you know you'll be spending a lot more money -- like if you have several expensive vacations planned or want to renovate your home -- it's a good idea to withdraw more of your income from your Roth IRA because that money will be tax-free. Then, during the years when you're spending less, you can withdraw more from your traditional IRA or 401(k).

If you want to minimize your taxes in retirement, you may choose to invest primarily in a Roth IRA now so the bulk of your savings will be in this type of account. Although you'll owe taxes upfront, if you're currently in a lower tax bracket than you expect to be when you retire, saving in a Roth IRA could help you pay less in taxes than if you save in a 401(k) or traditional IRA.

The unfortunate truth is that even though you've been paying Social Security taxes for decades, you may also owe taxes on your monthly checks once you retire.

You could face both state and federal taxes on your benefits. Whether you owe state taxes will depend on where you live, because although the majority of states do not tax benefits at the state level, there are 13 that still do. (Also, while West Virginia currently taxes benefits, the state is planning to phase this tax out by 2022.)

When it comes to federal taxes, how much you're taxed will depend on what's called your "combined income" -- which is half your annual Social Security benefit amount plus all other sources of income. (However, Roth IRA withdrawals do not count toward your combined income.) Depending on your yearly income, you could face income taxes on up to 85% of your Social Security benefits.

The only way to avoid Social Security taxes entirely is to make sure you're living in a state that doesn't tax benefits, and then keep your combined income below $25,000 (or $32,000 for married couples) per year. If you have a Roth IRA, that's an advantage because those withdrawals don't count toward your combined income -- so you can spend more each year while potentially lowering your federal tax bill.

Required minimum distributions (RMDs) are traditional IRA or 401(k) withdrawals you must make once you turn age 72. The reasoning behind RMDs is that because traditional IRA and 401(k) contributions are tax-deferred, you don't pay taxes on that money until you make withdrawals. Eventually, Uncle Sam will want his cut, so you can't leave your cash in these accounts forever.

Not taking your RMDs can result in a hefty penalty, too. If you don't withdraw the full amount from your 401(k) or traditional IRA that you're supposed to, you'll face a 50% tax on the amount you didn't withdraw.For instance, if you have an RMD of $20,000 and you don't withdraw anything that year, you'll be hit with a $10,000 tax. Or if you only withdrew $15,000 when you should have withdrawn $20,000, you'll face a tax of $2,500.

Taxes can potentially take a big bite out of your retirement income, so it's vital to prepare for them as much as possible. By being aware of what taxes you may owe and coming up with a strategy to minimize them the best you can, you'll be able to stretch every dollar in retirement.

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How to Retire in Thailand – Yahoo Finance

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If you're looking to stretch your retirement budget as far as you can and are up for an exotic adventure, consider retirement in Thailand. This country has a low cost of living as well as some of the world's most beautiful beaches. However, the culture shock of living in Thailand can be significant for Americans. Before considering a move overseas, ask yourself if you will find the reality of life in Asia thrilling and invigorating or intimidating and stressful. Here's what you need to know about retirement in Thailand.

The Cost of Housing in Thailand

Renting before you consider a property purchase is a good idea. The cost depends on the location. You can rent in some parts of the country for as little as 6,000 baht ($190) per month, but accommodation that tends to appeal to American retirees generally starts at around 10,000 baht ($318) per month.

Most apartments and many houses come furnished. Utilities are usually paid by tenants, although extras like Wi-Fi and cable TV are sometimes included in the rent. Most contracts are for a year, but six-month leases are also common. Upon signing you'll typically hand over the first and last month's rent, plus a security deposit of one month. If you use a real estate agent to find a place, the standard commission is one month's rent for a 12-month contract and is paid by the landlord.

Foreigners can own property in Thailand with restrictions. You can own a condo as long as total foreign ownership is less than 50% of the building. Foreigners cannot own land.

[See: The 10 Best Places to Retire in Asia.]

Owning a Car in Thailand

There are many affordable public transportation options in Thailand. However, if you decide to invest in a car of your own, you'll find that vehicles are reasonably priced in Thailand, as many are assembled here. Insurance is affordable, and full coverage on a midsize late model car should run about 20,000 baht per year ($635). However, financing is normally unavailable or difficult to obtain as a foreigner.

Thailand Transportation Alternatives

Motorbikes and scooters rule the roads in Thailand. They are cheap to own and operate. A new Yamaha Fino automatic scooter can be purchased for 44,000 baht ($1,400). You could rent the same motorbike for about 3,000 baht ($95) per month. They are easy to drive, maintain and park. For Thai families, the household motorbike is an indispensable necessity, and many foreign retirees and expats come to feel the same way.

Three-wheeled tuk-tuks can be loud and hot, but they are affordable, and they do have a certain charm. Even more ubiquitous than tuk-tuks are the bright red "baht buses" or songtaews. A songtaew is a heavy-duty pickup truck with a cabin and seating built onto the bed. Never get into a tuk-tuk or songthaew without agreeing on the price in advance. When possible, ask a local how much the fare should be, so you know if you're being overcharged.

Visa Options in Thailand

You can apply for a 60- or 90-day visa from your home country through the Thai Embassy or Consulate or apply for a retirement visa. To qualify, you must be 50 years of age and be able to show an adequate income from outside Thailand or deposit 800,000 baht ($25,400) in a Thai bank. While "adequate income" isn't formally defined, unofficially it's about $1,800 a month. The retirement visa is for one year and must be renewed annually. You can process the paperwork yourself and pay about 2,500 baht ($80), or you can seek help from an attorney who will charge 10,000 to 15,000 baht ($318 to $475).

[See: The Best Affordable Places to Retire Overseas in 2020.]

Food Markets in Thailand

Local Thai markets are usually open-air establishments either in a static location or recurring at a set place and time weekly. Most markets offer a wide variety of fruits, vegetables, herbs, spices and other cooking products. Thai markets also offer prepared foods, most commonly roast duck and chicken. A rotisserie roast chicken costs just 140 baht ($4.50). Spicy salads such as som tum (papaya salad) can be made to order for 30 baht (95 cents).

Street Food in Thailand

Food carts are a way of life in Thailand. Most carts are attached to a motorcycle, and many operate from the same spot for decades. Try one thing at a time until you acclimate to the local food. Returning to the same vendor again and again is a great way to make a local friend. One unique kind of street food is fruit. Vendors offer fresh pineapple, mango, watermelon and even stinky durian. Smiling vendors slice up the fruit into bite-sized chunks and hand it to you in a plastic bag with a bamboo skewer. For about 80 cents, you get a bag full of fresh and healthy fruit to go.

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Alcohol in Thailand

While Thailand is a very affordable place to eat, drinking can be expensive. Prices for alcoholic beverages are inflated thanks to import duties and taxes. Beer can be affordable if you drink locally produced brands such as Singha, Chang and Leo, which sell for about 30 baht (86 cents). Foreign brands that are licensed to be produced in Thailand like Heineken, Tiger and San Miguel Light are available for slightly more. More exotic imports can cost as much as $5.50 each. The biggest import duties are slapped on wine, causing outrageous prices. An average Australian table wine that would cost about $8 in the United States is $27 in Thailand. Many foreign restaurant owners offer by-the-glass wine promotions to attract diners.

The Cost of Health Care in Thailand

Quality health care is widely available in major Thai cities at affordable prices. Patients are flown from all over Asia for life-saving and one-of-a-kind procedures that can only be performed in Bangkok. Bumrungrad International Hospital hosts a million medical tourists per year. Professional athletes come to Piyavate Hospital for orthopedic surgery critical to their careers. Health professionals here are trained all over the world, including Germany, France, Switzerland and the United States. A visit to the dentist that includes a cleaning and cavity filling is less than $30. Most surgery costs 30% to 40% less than in western countries.

[See: The Best Places to Retire in 2020.]

Language in Thailand

Even for the linguistically talented, Thai is difficult to learn. It's a tonal language with a lot of dialects that make it even harder to understand than it is to speak. Many Thai people speak English. However, do not expect to find English to be spoken or understood everywhere you go. You should learn how to count at least to 10, direct a driver, order food and ask directions to the bathroom. Just those few phrases will make life much less stressful.

Part-Time Retirement in Thailand

While the weather is hot and humid year-round, some months of the year are hotter than others. And in some parts of the country, farmers burn their fields from the middle of March through May to prepare for the next planting, creating air-quality concerns. For these reasons, Thailand can be a top choice for part-time retirement overseas. You could create a retirement overseas plan that allows you to enjoy the best months of the year in Thailand.

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3 Stocks to Help You Build Retirement Wealth – Motley Fool

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If you are at least five years away from retirement, investing in stocks is a great way to build wealth for your eventual transition out of the working world.

Ideally, for a retirement nest egg, you'd do well to pick stocks that you can hold for 10 years or more. Given that perspective, you'll want to select companies that are playing into long-term trends and have a solid reputation for growth. Home Depot (NYSE:HD), Mastercard (NYSE:MA), and Teladoc Health (NYSE:TDOC) are three stocks that check both those boxes. Let's find out a bit more about each of these companies and why they might make good investments to build retirement wealth.

Note: Chart starts on July 1, 2015, when Teledoc went public.HD data by YCharts

Home Depot has been helping homeowners and professionals buy supplies to build and maintain their homes and offices since 1978. It has 2,290 stores across North America and is growing despite the threat of online retail competition.

With its "One Home Depot" initiative, the company is striving for excellent customer service regardless of whether you shop online or in stores.

Capabilities such as using its app to help find items inside the store, returning items bought online to a physical store, and picking up items from the store that were purchased online are all ways it's making it easier for consumers to make transactions.

Image source: Getty Images.

The company just finished its 2019 fiscal year in record-breaking style. Sales topped $110 billion on a year-over-year growth of 3.5%, with comparable same-store sales hitting an impressive 5.3%.

Digital ordering grew 21.4% over the previous year, and more than 50% of its online orders are picked up in the store. Over the last five years, it has grown same-store sales in excess of 5% every year, full-year earnings per share have increased 88% to $10.25, and the stock has more than doubled.

With almost 80% of U.S. homes over 20 years old, many will turn to Home Depot to help refresh or repair the place where they live for years to come. Combined with impressive stock growth, the company has been paying out a growing dividend over the last 11 years. Add in a dividend yield of 2.56% and a Dividend Reinvestment Program, this stock is a great way to build a solid foundation for your retirement portfolio.

Mastercard is a global payment processor that issues credit cards to consumers and businesses. Its cards were used 108 billion times last year to purchase almost $6.5 billion of goods and services in 210 countries and territories. Impressively, that's a 19.9% year-over-year growth in transactions and a 9.6% growth in dollar value.

Mastercard makes money primarily by taking a small piece of every transaction it processes. It racked up $12.8 billion in transaction processing and cross border fees in 2019,up 10% from the previous year. But it's also expanding into other businesses such as data analytics, cyber and intelligence products to detect fraud, loyalty and rewards services, and program management services. This segment made up $4.1 billion of its total $16.9 billion top line last year and grew at an impressive 23% clip year-over-year.

The stock is up over 200% in the last 4.5 years and has been paying a rising dividend for nine yearswith a dividend yield of 0.45%. Since cash is still the primary way commerce is done around the globe, this company has a bright future ahead, and its stock could help fund your retirement years.

Twenty years ago, working from home was really not an option with slow-speed dial-up internet connections and expensive laptops. But since then, technology has advanced and is making remote work easy and more productive.

Today, this same technology is making it possible for doctor visits to happen remotely too. Even though you might not have used Teledoc's services to connect with a medical professional from home or your mobile device, telemedicine is an undeniable trend that is here to stay.

Teledoc started in 2002 in Texas, went nationwide in 2005, and today serves patients in more than 175 countries and 40 languages. Last year, Teledoc facilitated 4.1 million telehealth "visits," which was up an impressive 57% from 2018.

The company captured $553 million in full-year revenue, growing 32% over the previous year. Most of its revenue (87%) comes via business-to-business subscriptions for insurers and corporate customers on behalf of their insured employees. The remaining revenue comes from fee-only visits where a client isn't part of a larger group program.

Although it's not paying a dividend, the stock has grown over 300% since its IPO in 2015. But it's not done growing, and the best days for this company may be yet to come. Global Market Insights estimates the total telemedicine market could be $130 billion by 2025, giving this market leader plenty of room to run. Looking back 20 years from now, it's likely that your future self will be happy that you added this stock to your retirement account.

Whether it's a solid dividend payer like Home Depot, a growth company taking advantage of technology like Teledoc, or Mastercard, which offers both growth and dividends, any of these three stocks could be a great way to start or add to your retirement portfolio.

With many brokerages offering free trades and the opportunity to buy fractional shares of stock, it's easier now than ever to get started (even with as little as $500).

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