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We are opening up the mailbag today. George wants to know how much risk he should take with his investments and Robert wonders which Roth – 401k or IRA – is better? We’ll also discuss the best way to help your parents with their investments and whether it’s smart to take Social Security early.

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Show Notes

Let’s jump into the mailbag and answer your questions about investment risk, different Roths, Social Security and more.

George is 65 and wants to know how much risk he should be taking in his portfolio.

You’re not the only one wondering about this. A lot of people wonder about how much risk and reward, or risk and return they should have in their portfolio. There are some misleading tools, like risk tolerance questionnaires. Then there’s the rule of 100, which is 100 minus your age to figure out your growth.

If everything’s going well in life, we feel good and confident about things. When times are bad, we feel bad. The same is true with the market and how we feel about it.

My take is – it depends on your income plan. If the market crashes, you want to make sure you have five years of supplemental income on the safer side of your portfolio, or what I call the war chest.

The remainder of your funds can be on the growth side. Maybe you want to do three years or more than five years. It depends on how safe or aggressive you want to be.

Robert wants to know which is better – should we max out a Roth 401k or Roth IRA? He’s in his mid-30s and already gets the Roth 401k match from his employer and adds an additional 5% in the Roth 401k. Should the remainder of his savings go in the Roth 401k or Roth IRA?

Let’s make one thing clear – both options are Roths. Roth means you pay tax today on your money. They both work the same. The money grows tax-free and every dollar you put in and every dollar of growth can be taken out tax-free in the future.

From a high-level standpoint, they work the same. You’re getting the same tax benefits. But there are some other factors to consider. First, you want to make sure you’re getting your company match, which Robert is doing.

The Roth IRA allows you to put in $6,000 a year, whereas the Roth 401k allows you to put in $19,500 a year. If you’re 50 or older, the Roth IRA allows $7,000 a year and the Roth 401k allows $26,000 a year.

Grace is wondering how she can help her mom handle her investments?

You’ll want to sit down and have a conversation with your mom. If she doesn’t know a lot about the investments she and her husband paid into it’s probably time to sit down with an advisor and get professional advice.

They’ll help your mom prepare for income planning, health planning, and estate planning. It’s important for those listening to know that both you and your spouse need to be involved in the planning process.

David isn’t expecting to need longevity in his retirement plan based on his family’s health history. Should he take Social Security right away?

Your full retirement age is based on the year you were born. If you were to take it early at age 62, you’ll get a reduced amount. You want to look at longevity and your savings together.

If you haven’t saved enough up for your lifestyle and you take Social Security too early you may run out of money. We can guess how long we’ll live into retirement but we can never know for sure. It’s better to over-plan than to under plan.

CNBC Article: https://www.cnbc.com/2021/08/04/these-retirees-are-more-likely-to-be-comfortable-or-affluent-.html

Listen to the full podcast or use the timestamps below to jump to a specific section.

[1:23] – CNBC article

[6:34] – How much risk should I take?

[12:41] – Which Roth is better?

[17:49] – How to help mom with investments

[22:13] – Take Social Security early?

Thanks for checking out this episode. We’ll talk to you again soon.

“We request that both spouses come and sit down for all our financial conversations.”

-Scott Sierens