Step 3 – Where should I save for retirement?

What financial vehicles could I use to work on building that nest egg in a tax-efficient way?

The federal government and IRS have given us a variety of places that we can save and invest and gain some tax advantages.  The biggest tax advantage is the ability to let our funds grow each year without having to pay taxes on the growth.  We call this compound interest and it’s very, very powerful.  Let’s take a look at some vehicles we can use that offer compound interest.

  • Traditional IRA
  • Roth IRA
  • 401(k)
  • 403(b)
  • Variable Annuity
  • Fixed Annuity
  • Thrift Savings Plan (TSP)
  • 457 plan
  • Cash Value Life Insurance

Each of the above mentioned tax-advantaged vehicles has pro’s and con’s.  They each have different features, restrictions and benefits as well.  An investor may have money in one or several of these tax-shelters.  Some of these aren’t available to all investors and each has varying costs and expenses.  But overall, these vehicles are where the majority of Americans are accumulating their retirement dollars.

Please keep in mind that investments will fluctuate and may be worth more or less than originally invested.

For the 4th and final step, look for my next post – Step 4 – Meeting my retirement goals

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Should we pay off our house?

Many people ask me this question as they approach retirement or shortly after they retire.  At the risk of being coy I have to answer; it depends.

For most people, having their home paid off is a wonderful thing.  They are less stressed, feel great about paying off the largest purchase of their lifetime and it provides a freedom in their cash flow they have never had.

For some, the tax bill that would befall them makes the question a bit tougher.  Not all people have enough sitting in savings, checking or non-IRA accounts to pay off their mortgage.  Sometimes, the bulk of their retirement savings is sitting in an IRA, which if withdrawn would be taxable at ordinary income rates.  At this point I recommend they chat with their accountant to see how much in taxes they would owe on such a withdrawal and then run some math to see how much it would “cost” to pay off the mortgage in one big swoop.  Often times, the accountant will crunch the numbers and recommend a slower withdrawal strategy out of the IRA, to keep the taxes low, and have the house paid off in 5 years, for example, instead of in 1 year.  Finding the right strategy for your particular situation requires sitting down with a trusted advisor and an accountant to “do the math” and see what might make most sense for your situation.

Some have argued it’s better to keep the money invested in the market as the long term average returns have outpaced today’s mortgage rates.  Using historical returns as our guide this is often true, but in retirement there is more to a person’s retirement strategy then just numbers.  I have found most would feel a lot better with the house paid off and most often that is what I recommend doing – in the confines of the most beneficial strategy your trusted advisor and accountant come up with.  If the money is just sitting in cash, then most can skip those meetings and just pay off the debt.  But if your money is in an IRA or another vehicle that would subject you to potentially large taxes, but meet with some experts and devise the best strategy for your situation.

If I can provide any further help or guidance please don’t hesitate to email me at

This should not be considered mortgage advice. Please consult a mortgage professional for advice regarding your specific situation.

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Beneficiary Designations

In my 21+ years of advising people on their finances I find one often overlooked area is beneficiary designations.  You may be asking yourself why this topic would warrant a full article.  Please allow me to share two stories so you can see the first hand impact of not having your beneficiary designations updated.

Several years ago I received a call from a gentleman who was referred to me when he lost his wife of over 30 years to cancer.  He called because he was going to come into a large sum of money from her pension plan and her life insurance and he had no clue what to do with the funds.  As we started to work up a strategy he called me one day out of the blue and said we may have a problem.  The beneficiary designations on her life insurance and pension plan still had her sister and brother listed from when she started teaching 30+ years ago…a few years before she met him.  Since finances weren’t their specialty they never remembered or were advised to go back and revisit those beneficiary designations and make sure they were updated to reflect him, being her husband, and their 6 children.    Thankfully her brother and sister didn’t fight his claim to the money and after a mountain of paperwork and phone calls he was made the beneficiary of those accounts and the checks were cut to him.  But just think if her siblings had not been so nice.  They could have taken that money and never let him have a cent.

We hear about these types of situations in the media and it is so simple to avoid these problems.  Often times it’s just completing a new form and nowadays as simple as going online and doing it electronically.

More recently I had a client who passed away suddenly.  Months before his death his family situation had changed and made some updates to his life insurance.  One policy he had, not through me, required a new beneficiary change form be completed by him and mailed or faxed back in.  I helped him on the phone with this company get the required form mailed to his residence.  Unfortunately he never got around to filling it out and sending it back in.  As I mentioned, he died suddenly.  Thankfully, everyone in his family acknowledged his wishes and took the appropriated steps and filled out all the required paperwork so the money could go to the people he wanted.  But again, they could have played hardball and won.  Beneficiary designations override a person’s will, so even if a will gets updated, that doesn’t mean those people will get the money that was supposed to be left to them.  The beneficiary designations have to be updated as well to avoid all the trouble that could come down the road.

So please take the time NOW (there is no time like the present) to check your IRA’s, 403b’s, 401k’s, Life Insurance (Private and Work plans), Pension plans or anything else that has a beneficiary designation on it and make sure those designations match your wishes.

The two stories I shared are those I have first hand experience from but being in this industry as long as I have.  However, I have heard many, many stories just like this and not all had happy endings like mine fortunately did.

Have more questions and need some more specific help?  Don’t fret!  Just email me at larry@midwestwealthadvisors with your specific question.  You will get a reply just soon as I am able.


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Lawrence(Larry) Tate