Jerome and Candace in Mason: We’re both in our early fifties and hoping to retire in about ten years. Is there a recommended amount of stocks versus bonds we should own right now?
Answer: Some online retirement calculators and investing “rules” would say this is an easy question to answer. For example, the “Rule of 100” (sometimes also referred to as the “Rule of 110”) says subtracting your age from 100 (or 110) gives you the percentage of stocks you should have in your investment mix.
But here’s the problem: a rule like this treats everyone with the same age as, well, completely the same! It doesn’t take into account considerations such as your sources of income, your tolerance for stock market risk, or your retirement goals. Your financial situation and retirement dreams are unique to you, so why use a rule that gives “blanket” advice?
Moreover, this generalized type of advice usually suggests a heavy emphasis on bonds for someone nearing retirement. But just getting to retirement isn’t enough. You also want to get through retirement, right? For you, it might make sense to have a little more stock exposure to help beat taxes and inflation. But again, everyone is different.
Plus, specifically regarding the Rule of 100, a lot has changed since it was created. These days, U.S. Treasury bonds are paying a fraction of what they were paying 20 or 30 years ago, meaning the bond portion of your investments are no longer much of “income generator.” Additionally, life expectancies keep creeping upwards, requiring your money to last longer.
Here’s The Simply Money Point: To know how much stock exposure you should have, a personalized financial plan can help. It will analyze your entire financial picture and determine an investment mix of stocks and bonds that’s customized for your needs. This way, you’ll be taking just the right amount of investment risk – no more, no less.
Grace from Batavia: My nephew is physically disabled. Is there something (or some way) we can help him save for some of the healthcare expenses he’ll face for the rest of his life?
Answer: We have some good news for you. In 2014, Congress signed the ABLE (“Achieving a Better Life Experience”) Act. This legislation allows individuals with disabilities to set-up a special account to save money for college and other qualified expenses on a tax-deferred basis. This account is viewed as a supplement to public benefits and private insurance. Each state has its own set of rules and regulations.
In Ohio’s case, the account is called a STABLE (“State Treasury Achieving a Better Life Experience”) account. To qualify, an individual must have developed his/her disability before the age of 26, must have lived with their disability for more than a year, or expect it to last for at least a year. There are also additional criteria involving Social Security benefits.
There are five investment options from which an individual can choose. There’s currently a maximum yearly contribution limit of $15,000 from any person or source, plus, if an individual is employed, he/she can contribute up to additional $12,060 of their own income. The max lifetime limit is $462,000. Earnings grow tax-free, and qualified expenses come out tax-free. An Ohio resident can also get a state income tax deduction for contributions.
An eligible individual, his/her parent or legal guardian, or the holder of a power of attorney can set-up a STABLE account. This can be done for free at www.stableaccount.com. A minimum deposit of $50 is required, but there is no minimum on subsequent deposits. There is a $30 annual account maintenance fee as well as investment fees.
Also of note: an individual does not have to be a resident of Ohio to open a STABLE account (however, the annual maintenance fee will increase to $42). Kentucky also has its own version (only available to Kentucky residents), which you can find at www.stablekentucky.com.
The Simply Money Point is that a STABLE account is a fantastic way for individuals with disabilities to save for the future without hurting their government-assisted benefits. For more information about Ohio’s plan, including eligibility requirements and what counts as a “qualified expense,” visit www.stableaccount.com/faq.
Responses are for informational purposes only and individuals should consider whether any general recommendation in these responses are suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing, including a tax advisor and/or attorney.
