The Fallacy of Percentage Based Numbers, or Why You Can Retire

Ah, it’s just not a good week unless we have a healthy article from Mr. Money Mustache taking on another ridiculous article stating how impossible it is for a middle class family to retire. You should head over to read the original article, wherein the author states that a family with a $150,000 income would take 110 years of work to retire; or the reply from the ‘Stashe about how absurd the tone of the article is and how it draws a populist CEOs-get-paid-too-much-and-that’s-the-problem conclusion.

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401k Contribution Limits for 2014

The IRS has released the new figures for 401k contribution limits in 2014 and they will remain the same as 2013: $17,500 for those under 50, and an additional $5,500 “catch-up” for those over 50. These limits apply to 403b, most 457, and government Thrift Savings Plans as well. This isn’t too surprising given the low inflation rate this year (as these amounts are inflation adjusted at $500 increments).

There were some small adjustments to income thresholds (which appear to be more applicable to IRA contribution eligibility). The IRS news release contains all the gory details.

401k Contribution Limits for 2014
Age (years) Maximum
0-49 $17,500
50+ $23,000

What is a 401k?

A 401k is a tax-advantaged retirement account sponsored by an employer. The tax implications differ based on whether the 401k plan is a “traditional” plan or a “Roth 401k”. When not otherwise stated, most people refer to traditional 401ks as simply a “401k”, as Roth 401ks are newer and less common.

A traditional 401k allows an employee to save for their retirement using pre-tax money – thereby reducing their taxable income in addition to putting money aside for retirement. The money is taxed when withdrawals are made from the account. Using this type of plan, you are deferring your taxes until retirement.

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An Alternative Asset Allocation For Retirement

I’m not sure if anyone else noticed, but Wade Pfau is at it again – coming out with a very counter-intuitive proposal for asset allocation strategies in a paper named Reducing Retirement Risk with a Rising Equity Glide-Path. (You may remember hearing his name linked to safe withdrawal rates and savings rates).The big take-away? Well it up-ends the asset allocation strategies that advisors have been parroting for everyone to move away from stocks as they get older.

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Lousy 401k Plans

Lousy 401k plans are on my mind lately. You see, yesterday I wrote about my own experience with a 401k to IRA rollover for old lousy 401k plans I had at former employers. I thought I should take a step back and try and give an idea on how to identify if you have a lousy 401k plan, and possible ways to remedy it.

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Rollover your old 401k Now!

I’ve had the good fortune of working for employers that offered a 401k plan ever since I got my first job out of college. I always knew the importance of saving in a 401k to reduce my taxes as well as lay a foundation for retirement. But I never knew what to do with my 401k once I left those jobs. As a result I did nothing, which is probably the second worst option (right behind cashing it out).

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