Planning

Your retirement income shouldn’t be a guessing game true So we built a dynamic safe withdrawal tool to help take the guesswork out of it The thought of running out of money in retirement can be scary, and it begs a common question: How much can I safely withdraw in retirement? The 4% rule has dominated the conversation here, due in large part to its simplicity. The idea: spend up to 4% of your retirement savings each year, and your money will most likely last 30 years. It’s a helpful shorthand early on, but the closer you get to retirement, the more nuance matters. Because the truth is there is no one single safe withdrawal rate. Yours will change year to year depending on a few variables, including: Market conditions (see: the retirement Class of ‘08) Inflation (see: recent times) How long you expect to live If all of this sounds maddeningly inconclusive, we agree. So we designed a dynamic safe withdrawal strategy and built the tool right into the Betterment app. All so you can spend with peace of mind. How Betterment handles safe withdrawals If you're a Betterment customer, you’re probably familiar with Goal Forecaster. It's one of the most helpful tools we have in charting a path to retirement. Once you're in retirement, we shift Goal Forecaster in reverse. Instead of projecting how your savings may stack up over the years, we project different scenarios for spending them down in retirement. Want to see for yourself? Create a new Retirement Income goal (Add new > IRA > Create new Retirement Income goal) and find the tool under "Projections." Enter how much you have in retirement savings, then we'll serve up a personalized projection for a safe monthly withdrawal. We auto-fill a life expectancy age, but you can tinker with this number too. When the time comes to retire and start putting your hard-earned savings to use, we suggest reviewing your safe withdrawal rate annually, and working with both a tax and financial advisor to fine-tune a spending plan for your specific situation. Assuming your retirement savings are spread across taxable, tax-deferred, and tax-exempt accounts, the ideal withdrawal order between all of them will depend on a few variables. Before you go any further, however, it's worth reflecting on a final question. What does "safe" mean to you? "Die with Zero" makes for a provocative book title, but we don’t recommend taking it literally. So while most safe withdrawal strategies (including ours) define "safe" as simply not running out of money, you, a totally reasonable human being, might want to raise the bar slightly higher. Maybe you'd rather not cut things so close at the end. Maybe you'd like to leave some of your wealth to family or charity. Whatever your reasons, they’re valid. Just know you'll need to adjust your withdrawals accordingly. So play around with our projections. Sit with a few different end-of-life scenarios, until you land on a number you can live with. Then spend away, and start realizing the retirement of your dreams.

How To Manage Debt And Invest At The Same Time true With the right strategy, it's possible to make progress on both goals. Managing debt and investing is a tricky balancing act. You can’t do everything at once, but paying off debt and building wealth are both vital to your financial future. In this guide, we’ll explain how to manage debt and invest in six steps: Account for your spending Make minimum debt payments Contribute to an employer-matched retirement plan (if you can) Focus on high-interest debt Build an Emergency Fund Invest for the long-term First, let’s talk about your debt, your goals, and your repayment strategy. Planning around your debt Debt can completely derail your financial goals. It eats through your savings and can offset the gains you make through investing. Repaying major debt like student loans can feel like climbing a mountain. But not all debt is the same. High-interest credit card debt will quickly outpace your investment earnings. Ignore it, and it will consume your finances. Debt with lower interest rates, like some student loans or your mortgage, can be much less of a priority. If you put off investing in favor of attacking this debt, you may not have time to reach your goals. It is possible to pay debt and invest at the same time—the key is to create a strategy based on your debt and your financial goals. At Betterment, we recommend focusing on the debt with the highest interest first. The more time you give this debt to grow, the harder it becomes to pay off. Now let's walk through Betterment’s six steps to manage your debt and invest. Step 1: Account for your spending Your finances are finite. You have a limited amount of money to pay down debt, invest, and cover your expenses. The first step is to learn what comes in and goes out each month. How much do you have to work with after rent, food, utilities, and other fixed expenses? Are there expensive habits you can eliminate to free up more money? Don’t plan to make changes you can’t stick to. The goal here is to establish a monthly budget, so you have enough to cover your bills and know how much you can save or put towards debt. We also recommend keeping enough in your checking account to act as a small buffer—three to five weeks of living expenses is generally a good rule of thumb—as even the best laid plans (or budgets) are derailed at times. Step 2: Make minimum payments You really don’t want to miss your minimum payments. Fees and penalties make your debt hit harder, and they’re usually avoidable. Think of your minimum debt payments as fixed expenses. After your regular living expenses, minimum debt payments should be a top priority. Step 3: Contribute to an employer-matched retirement plan If your employer offers to match contributions to a 401(k), that’s free money! Don’t leave it on the table. A 401(k) also comes with valuable tax benefits. Even if it under performs, the match program allows your contributions to grow faster. It’s like your employer is giving your financial goals a boost. And that’s why this is almost always one of the smartest investment moves you can make. Step 4: Focus on high-interest debt When it comes down to it, high-interest debt is your biggest enemy. It’s a festering financial wound that grows faster than any interest you’re likely to earn. Left unchecked, credit card debt can easily cost you thousands of dollars in interest or more. And that’s money you could’ve invested, applied to other debt, or saved. Step 5: Build an Emergency Fund Without an emergency fund, you’re one unexpected medical bill, car accident, or surprise expense away from even more debt. Generally we encourage you to pay off your high interest debt before fully funding a three to six month emergency fund. However, some people, particularly those who are worried about income loss, prefer building a large cushion of cash for emergencies first over paying down extra debt Step 6: Invest for the long-term Once you’ve paid down your high-interest debt, you can begin investing for the long-term. With a diversified portfolio, your investments can outpace your lower-interest debt. So you can work toward financial goals while making minimum payments. Using automatic deposits, you can create an investment plan and stick to it over time, treating your investments as part of your fixed budget. Your emergency fund will give you some financial breathing room, and before you know it, you’ll be making progress toward retirement, a downpayment on a house, college for your kids, or whatever your goal is.

Why Saving for Your Kid's College isn’t a Pass-Fail Proposition true Investing even a modest amount now can make a noticeable difference down the road. In the long list of priorities during the early years of parenting, saving for your kid’s college may fall somewhere between achieving rock-hard abs and learning a foreign language. It’s not usually high on the list, in other words. And while the number of 529 plans, a tax-advantaged investing account designed for education expenses, continues to grow (15.7 million), that still makes for less than 1 plan for every 4 people under the age of 18 according to the latest U.S. Census numbers. The relative lack of saving in this space should come as no surprise when you factor in the financial commitments of early childhood—daycare alone can feel like a second mortgage—but the statistic also presents an opportunity. Start saving for college a few years earlier, or even at all, and that’s more time for compound interest to potentially work its magic. The stakes are high considering the skyrocketing costs of college. Before we dive into some practical budgeting tips to address this topic, let’s pour out some whole milk for the unique struggle that is saving while also supporting a family. A financial planner’s first-person account from the parenting front lines Bryan Stiger became the proud father of a baby girl last year. He also just so happens to be a Betterment Certified Financial Planner™. So he’s uniquely situated to talk about the money management challenges facing heads of households. “Since becoming a parent, it’s been a rollercoaster for me and my wife for sure,” says Bryan. “A few other things that feel like a rollercoaster when you become a parent are your expenses and your savings.” A big part of the problem is that kids create a financial double whammy, Bryan says. They appear suddenly and start demanding, among other things, a share of your limited money supply. At the same time, they introduce a series of potential new savings goals. Think not only a college education but more immediate big ticket items like braces. When you heap these goals on top of your pre-existing ones, it can quickly feel overwhelming. So how do you save for them all? Bryan suggests you don’t. Pick and prioritize only a handful, he advises, then define those goals more clearly. While this is a personal decision, his recommended order of importance for clients usually goes something like: Retirement (contribute just enough to get your employer’s full 401(k) match, assuming they offer one) Short-term, high-priority goals High-interest debt (any loans at 8% and above) Emergency fund (3-6 months’ worth of living expenses) Retirement (come back to your tax-advantaged 401(k) and/or IRA and work to max them out) Other (home, college, etc.) Your kid’s college fund, as you can see, shouldn’t come before your personal goals. That’s because you can usually finance an education, but few banks will finance your retirement. That doesn’t mean your hopes of helping your kid with college are doomed, however. The key, according to Bryan, is to first size up your priority goals. This involves crunching some numbers and answering “How much?” and “How soon?” for each goal. In the case of college, “How much” will depend on a few factors, decisions like private vs public, in-state vs out, etc. A calculator tool such as this one from calculator.net can help you with a rough estimate. In terms of “How soon?”—or in finance-speak, your “time horizon”—we recommend using the year your kid turns 22. That’s because parents tend to continue saving for college while their kids are enrolled. Once you have a rough idea of these two numbers, Betterment’s tools can tell you how much you should contribute each month to help increase your likelihood of meeting your goal. Do this for each of your priorities, and you very well might find you don’t have enough cash flow to cover them all. This is normal! Bryan likes to remind clients in these moments that short-term goals, by nature, won’t soak up their cash flow forever, especially if they doggedly pursue them. Once met, you can redirect that money to other pursuits like a down payment on a house – or your kid’s college. Above all, forgive yourself if you fall short When it comes to saving for your child’s education, two things are true: You have precious few years from an investing perspective for compound growth to potentially work its magic. You may not be able to save as much as you’d like—or at all in the beginning—due to higher priorities. Given these realities, it’s okay to lower the bar. If you’re still working on high-interest debt and/or an emergency fund, set a goal of achieving those in 2-5 years so you can focus elsewhere afterwards. Or set up a seemingly small recurring deposit toward an education goal now. It could be $10, $25, or $50 a month. It can still make a difference down the road. If you ease your child’s student loan burden by even a little, you’ll have done them a huge favor. It’s a favor they probably won’t fully appreciate for a while, but since when was parenting anything but a thankless job?