The money in your 401(k) and IRA accounts doesn’t belong entirely to you

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The money in your 401(k) and IRA accounts doesn’t belong entirely to you
Moderate and higher income earners who contribute to traditional 401(k)s and IRAs are advised to take taxes into account when assessing their retirement preparedness, according to this article from MarketWatch written by Alicia Munnell, director of Boston College Center for Retirement Research. That's because compared with lower earners, clients with moderate and higher incomes will owe more taxes on the distributions from tax-deferred accounts after they retire, explains the expert. Working households’ incomes between $64,001 and $287,000 will owe about 22% of their assets in taxes while those who earn more than $287,000 will pay about a third.

Warning: Financing 30 years of retirement with 40 years of work is nearly impossible for many
A report by economists with the National Bureau of Research shows that funding 30 years of retirement could be extremely challenging for many seniors who only have 40 years of work, according to this article on Forbes. The number of workers aged 55 and older increased to 21.7% from 11.9% in 1994, the report shows. “If a couple (in their early 60s) retired today, the survivor of the couple would have about a 40 percent chance of living an additional 30 years.”

How did the bucket strategy work in 2018?
The retirement bucket portfolio held its ground last year, when the stock market fumbled and many bonds yielded dismal results, writes Morningstar's Christine Benz. Cash in the bucket portfolio was a "standout," posting nearly 2%, writes the expert, adding that maintaining a bucket portfolio following last year's losses will still depend on the investors' cash cushion, income extraction and asset allocation management. "For a retiree who's maintaining two years' worth of portfolio withdrawals in cash and employing a laissez-faire approach to tweaking asset allocation, doing nothing is probably the right course."

Here's how to invest that windfall for retirement if you're 40-something or older
Clients in their 40s who want to save a windfall they received have the option of using the funds to max out their 401(k) contributions, according to this article on CNBC. This move can help reduce their taxable income, as 401(k) contributions are pre-tax. Those who want to save outside their 401(k)s may opt to set aside some money in a traditional or a Roth IRA. A taxable brokerage account is also another great option. "A lot of times people have emergency savings and money going to their retirement accounts, but they don't have money in a taxable account. That's the kind of money that can help you retire early or meet other retirement goals," says an expert.

Why denial might be a smart investment strategy
Retiree investors will be better off doing nothing to their portfolio during a market correction and focusing on long-term returns, writes an expert on MarketWatch. That's because short-term returns behave in a volatile fashion, meaning "those who focus on performance over shorter periods will have higher subjective perceptions of risk," writes the expert. "That in turn translates into a lower allocation to the stock market."

This article originally appeared in Financial Planning.
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Social Security Retirement income Retirement withdrawals 401(k) IRAs Alicia Munnell Center for Retirement Research