Why your 401(k) doesn’t tell you the whole story


Question: Kenton County TR: How much do I need in my 401(k) to retire? I have almost $500,000, but I don’t know if it’s enough since it’s the only retirement account I have.

A: Congratulations on a job well done! However, let’s throw some cold water on the celebration. Because all that money in your traditional 401(k) isn’t all yours.

Although your account balance may show something close to $500,000, the total amount has been tax-deferred; that is, you have agreed to let the government give you initial tax relief on contributions as long as you pay tax on later withdrawals. So, for example, if you’re in the 12% tax bracket in retirement (assuming current tax brackets stay the same for some time), you only have about $440,000. In the 22% bracket? Only $390,000. Paints a slightly different picture, doesn’t it?

That said, these amounts could be enough to allow you to retire. Because now the question becomes, can you live on 3 or 4% of that amount each year? In all fairness, some people need millions to retire; others only need a few hundred thousand. How much you need to retire the way you want depends on many factors, including your lifestyle, budget, other sources of income (such as social security, pension, other investments, etc.) .), your health status and the number of years in retirement, just to name a few.

Here’s Allworth’s advice: As you approach retirement, consider working with a fiduciary financial advisor. He or she can look at your overall financial situation to help you determine if you are financially on track for a successful retirement.

Stephanie in Colerain Township: I just noticed that my credit rating dropped, and I don’t know why. I just paid off my mortgage, but why would that have a negative impact?

A: While you might not think paying off a mortgage hurts your credit score, sometimes it does.

What is happening here? Simply put, credit scoring companies, such as FICO (Fair Isaac Corporation), like to see that you have different “types” of credit. For example, a “revolving” account is something that has a different payment every month, like a credit card. Meanwhile, an “installment” account has a fixed payment over a certain period of time, like a mortgage, car loan, or student loan. Credit score models want to see that you can handle all types of credit well, so your credit mix is ​​about 10% of your credit score. They also like to see a long credit history.

In your case, now that you are no longer repaying your installment loan, the algorithm used by your credit score could “confuse” you a little. But the good news is that, according to the Equifax credit bureau, if you’ve consistently paid your monthly mortgage payments on time throughout the term of this loan, that positive behavior should offset the decline in your long-term credit score. . Plus, your paid off mortgage should stay on your credit report for up to 10 years, which will help increase the length of your credit history.

You don’t mention how much your credit score has dropped, but if you’ve seen a significant drop and/or it stays lower for a while, keep in mind that other activities may also have an impact. negative impact on your credit score. Have you applied for a new credit card recently? Missed a payment? Have a high balance? These might actually be the culprit.

Allworth’s advice is that the possibility of a small drop in credit rating should not deter anyone from paying off a mortgage. Just understand that it can happen, but it should bounce back quickly.

Each week, Amy Wagner and Steve Sprovach of Allworth Financial answer your questions. If you or a friend or family member has a money problem or problem, please feel free to send these questions to[email protected].

The answers are provided for informational purposes only and individuals should consider whether the general recommendations contained in these answers are appropriate for their particular situation based on their investment objectives, financial situation and needs. To the extent a reader has any questions regarding the applicability of any specific matter discussed above to their individual situation, they are encouraged to consult with a professional advisor of their own choosing, including a tax advisor and/or attorney. . Retirement planning services offered byAllworth Financial an SEC-registered investment adviser. Securities offered by AW Securities, a registered broker/dealer, Member FINRA/SIPC. Visitallworthfinancial.com or dial (513) 469-7500


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