Income Archives - FI Goals

02May 2021 by Martin@FIgoals.com No Comments

A High-Yield Portfolio’s Worst Nightmare

Income, Investing

The ultimate 'Sequence of Return' stress test to start your retirement. How did a high-yield, high-distribution retirement portfolio hold up during the pandemic, market meltdown, and economic shutdown of 2020? Despite naysayers saying a 7% withdrawal rate will never succeed, it just did during the ultimate stress-test. A year ago, I wrote an article titled “EARLY RETIREMENT: YOU CAN RETIRE 31% EARLIER”. I then showed the math on how a 7% withdrawal rate would allow you to reach your financial independence number 31% faster than a typical 4% withdrawal rate. It was a shot across the bow of all the people claiming you had to withdraw less than 4% to be safe during a prolonged retirement. My argument: the source of the distributions is a major factor and they had left it…

08Nov 2020 by Martin@FIgoals.com

Inflation Will Crush Your Financial Plan

Income, Investing

How does inflation affect your financial plan? Inflation is something that's easy to understand but your financial plan could fall apart before you realize if you don't account for it. Don't let inflation crush you! Have you ever heard of the term purchasing power? It means you can buy the same basket of goods year after year even though inflation makes those goods more expensive over time. Your investment portfolio value must increase by the same amount as inflation to maintain your purchasing power. If you withdraw 5% each year and inflation is 2%, your portfolio should be returning around 7% each year to maintain your purchasing power. Let’s take a look at Frank. He put together a financial plan and is looking to retire early. He expects a 4% withdrawal rate…

22Oct 2020 by Martin@FIgoals.com

Closed-End Funds – The Ultimate Guide

Income, Investing, Top Posts

Closed-end funds can give your retirement income a boost through managed distributions in an environment where the fund managers can stick to long-term strategies. This ultimate guide to closed-end funds provides all of the knowledge and resources needed to start investing in CEFs. Article Outline: How closed-end funds differ from mutual funds and ETFsUnique attributes of closed-end fundsWhat is included in fund distributionsA deeper dive into return of capitalRules for buying closed-end fundsThe risks associated with closed-end funds Your introduction to closed-end funds Closed-end funds are the lesser-known cousins of the mutual funds you know and love. You see, there are two different categories of mutual funds: open-end funds and closed-end funds. Open-end funds are the typical mutual fund you are familiar with in your 401k. Closed-end funds are a tiny portion of the…

21Jul 2020 by Martin@FIgoals.com No Comments

Best Withdrawal Strategy for Inherited IRAs Under the New Secure Act

Budgeting, Income, Top Posts

Googling the topic of inherited IRAs brings up a lot of articles outlining the new rules. There is very little outlining the best way to approach the withdrawals, though. This article rectifies that with the easy “Years Remaining” strategy that will maximize the amount of the beneficiary IRA you get to keep in the long-run. What happened? The SECURE Act changed how long non-spouse beneficiaries of IRAs have to withdraw the money and it makes a big difference in your retirement planning. The SECURE act stands for Setting Every Community Up for Retirement Enhancement. (Congress loves their acronyms, don’t they?). It was signed into law on December 20, 2019, and takes effect for any IRA inherited January 1, 2020, or later. Prior to the SECURE Act, IRA beneficiaries could take advantage of a feature…

04Mar 2020 by Martin@FIgoals.com No Comments

The 4% Safe Withdrawal Rate Is Safer Than You Think

Income, Investing

Knowing the sources of your income makes a big difference in safe withdrawal rates. What's the 4% safe withdrawal rate rule? Various economists and financial analysts have studied what would be a safe withdrawal rate in retirement based on past data. They would look at the returns of stocks and bonds for each year from 1926 to 1994 (or whatever time period they had access to). They would plug in different return rates over a thirty-year time period (a typical retirement). The results showed there was no period that would deplete the portfolio with a 4% withdrawal rate. It became a very easy rule of thumb to go by. You could then calculate your retirement needs something like this: I need $40,000 a year to live on so I need…

04Mar 2020 by Martin@FIgoals.com No Comments

The Ideal Account Type For Each Investment

Income, Investing, Top Posts

Some investments are better in certain accounts because of different tax structures. Here's how to align those tax structures to minimize taxes. To maximize your financial independence goals, you need to increase income, minimize expenses, maximize investment gains, and minimize the taxes paid on those gains. This article will tackle that last item. I group different account types together based on their tax structure. With that mindset, we have: What types of accounts are there? What does each account type mean and when should you use each account type? Health Savings Accounts are one-of-a-kind and should be maxed out if a high deductible health insurance plan fits into your family’s needs. It is the only account type where it's possible to not pay any taxes on the money. Ever! The Roth IRA category includes Roth…

04Mar 2020 by Martin@FIgoals.com No Comments

Tax Implications of Common Investment Strategies

Income, Investing

Understanding the tax implications of your investment strategy is as important as the strategy itself. This article is a follow up to “Want a Great Retirement”. That article went into the pros and cons of common retirement income strategies. This article will go into the tax implications of those common investment strategies. Buy individual bonds There are three main tax structures for bonds: Treasuries are taxed at the federal level but usually avoid state income taxes.Municipals avoid federal tax and usually avoid state income tax if they were issued from the state you reside in. For example, if you live in New York and buy Ohio muni’s, New York will make you pay state income tax on that income.Corporate bond income is taxed as ordinary income with no special treatment. The ideal scenario…

04Mar 2020 by Martin@FIgoals.com No Comments

Want a Great Retirement? Focus On Dividend Income

Income

Dividend income will smooth out any market fluctuations and overcome inflation during retirement. Highlights: Bonds offer consistent income but don’t increase with inflation.Growth stocks can offer high returns but are volatile.Dividends offer stable income and increase with inflation so you keep a standard of living.Dividends also help smooth out the ups and downs of stock returns. How do you pay your bills during retirement? There are several ways to finance your retirement. Some of the usual ways are collecting interest from bonds, dividends from stocks, or capital gains from selling growth stocks. Of course, you could hit the lottery or get a big inheritance from a long-lost uncle. Those last two sound pretty cool but let’s focus on the options we can control. Interest from bonds. You buy bonds or a bond fund. Short…

04Mar 2020 by Martin@FIgoals.com No Comments

Early Retirement: You Can Retire 31% Earlier. Here’s How.

Income

Speed up your retirement date without having to increase your savings rate. First, some history on retirement People retiring at some point in their life is a fairly recent concept. Prior to the 1700s, the average life expectancy was only 40 years old at the high end. The focus was to have children who were capable of tending the farm before you passed away. "Enjoying your golden years" was not even a thought. It wasn't until the mid-to-late 1800s that people started living long enough where they could out-live their job requirements. It was mostly physically demanding jobs that would've been tough to do past 50 (firefighters, policemen). The government recognized that weakness in the system and developed pension plans to help those workers. As life expectancy increased, even people…

04Mar 2020 by Martin@FIgoals.com No Comments

Your Net Worth: It’s the Engine to Financial Independence

Budgeting, Income, Money Mindset

Figuring out your net worth is an important step in gaining financial freedom. In a nutshell Net worth is an important calculation because it dictates how much income you'll have in retirement. Add up all of your assets and subtract out all of your debts. What’s left is your net worth. Ideally, you want to see a positive number there, but based on what stage of life you are in a negative number can be OK! This figure simply tells you how close you are to financial independence; no big deal. Your net worth will show you what retirement will look like. Your net worth tells you how close to FIRE you are. How? Take your net worth and multiply by 4%. That’s the amount of income your net worth can afford to pay out each…