Bonds With Negative Yields

There are over 17 trillion dollars of bonds with negative yields. Does this mean you are paying someone for the privilege of loaning them money? And why are people buying them?

Monday Morning Money—Bonds With Negative Yields

Each episode of Monday Morning Money is also broadcast on Local Radio, WMOA (1490 AM and 101.3 FM).  You can hear it at 11:07 every Monday. 

In addition, you can also hear this episode on our YouTube Channel.  Please take a moment to subscribe, as it helps our analytics and improves our reach.  This also appears on Facebook and LinkedIn.  

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

$17 Trillion of Bonds With Negative Yields

There has been a lot of attention lately about the more than $17 trillion of debt with negative yields. Much of that is issued by foreign governments. But there is about a trillion dollars in corporate debt with negative yields
 
So does this mean you are paying these countries for the privilege to loan them money?

The Basics of Yield

Yield is the return you will earn if you buy and hold a bond until it matures. It factors in the interest rate, the return of your principal, how long until it matures, and the price you pay.
 
So keep in mind, yields and interest rates are NOT the same thing. In some cases, these bonds could pay the investor interest. German bonds currently do not. But you can have a bond with a negative yield which does pay interest.
 
The thing which causes their yields to be negative is the price investors have to pay. Paying a high price and holding the bond to maturity assures you of a negative return—even though you might collect interest along the way.
 
Let’s look at a simple example. You have a bond which matures 10 years from now. It has a coupon or interest payment of 1.6% per year. You collect that for the life of the bond. When the bond matures, the issuer typically redeems them at a price of $100. If you buy this bond for a price of $116 or more, your yield will be negative. Why? Because the return from your interest won’t be enough to compensate for the high price you have to pay.

Why Buy Bonds With Negative Yields?

This is where it helps to understand the relationship between yield and bond prices. Yields and prices are inversely related. That means if one goes up, the other goes down. Think about a teeter totter. On one end you have prices, the other side yields.
So why would someone buy bonds with negative yields? If you know you are going to lose money holding these notes, why wouldn’t you just put the money under your mattress?
 
One theory is speculation.  Those who are buying these notes are speculating that yields will go even lower. That’s the only way buying a bond with a negative yield results in a profit.
  
Those who are buying these notes are speculating that yields will go even lower. That’s the only way buying a bond with a negative yield results in a profit.

Buy Low, Sell High

There is a saying in the investment world. Buy low, sell high. With bond yields at extremely low—and in some cases negative—levels, it means prices are already high. Buying bonds with negative yields, or longer term bonds with very low yields, seems like a recipe for the opposite.
 

Stay Informed.

Monday Morning Money is a podcast talking about current events which  impact your bottom line.  

If you would like to be notified when a new episode is released, sign up for our mailing list.  Just complete the form.

Join Our List Today!

* indicates required
Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Our Most Recent Videos

The 2020 Bear Market: Here’s Where We Are

The 2020 Bear Market Here is where things stand with the 2020 bear market, as of March 26. click to enlarge Some facts First let’s start with some facts. Current
Watch Now

3 Things To Know About Bear Markets

This is the first official bear market since 2009. In this episode, We'll share 3 things you should know about bear markets.
Watch Now

Should You Refinance Your Mortgage?

Should You Refinance Your Mortgage? One of the things not mentioned much in the wake of the big stock selloff was the impact on bonds and interest rates.  This has
Watch Now

Still Not A Bear Market

Still Not A Bear Market, Yet Right now, there is a lot of fear and panic on Wall Street. It looks and feels bad. Yesterday seemed to amplify those fears
Watch Now

The Hidden Risk In Bonds

Recent volatility in the stock market has many investors looking for “safety”. Many turn to government bonds. But is now the right time to invest in these notes? Today we’ll talk about the hidden risk in bonds.

Podcast: The Hidden Risk In Bonds

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

To understand the hidden risk in bonds, there are two important concepts.

Key Concept 1: Yield

When talking about bonds, the first key concept is yield. Yield is the return you will earn when you buy a bond. It factors in the current price, the interest rate, the date it matures, and the return of principal.
 
If you buy a bond with a 2% yield and hold it until maturity, that is the return you will realize.

Key Concept 2: The Relationship Between Yield and Price.

The second concept is the relationship between yield and price. Bond yields and bond prices are inversely related. This means when bond prices go up, yields go down. And when yields go up, prices go down.

Where is the Hidden Risk In Bonds?

Bond yields are near historic lows. And it is hard to imagine them going lower. When they increase, it could create a very difficult situation.
 
Those who buy these longer term notes will face two choices. The first is to accept a low rate of return over the next several years. The other option is to see the value of their investment decline as yields move higher.
 
Let’s show you an example.
This is an actual bond quote from Monday, August 12.  (Click image to enlarge).  This note matures in May 2029.  The yield was 1.595%.  If you purchased this bond your price was 107.  

Hold it until it matures

If you hold this note until maturity, you will earn 1.595% over the life of this bond.  You’ll collect the interest payments, and most likely the principal.   (US Government bonds are backed by the full faith and credit of the United States).  

What if Yields Go Up?

Though complex, you can calculate the price of a bond if yields change.  What happens to the price of this bond if yields increase to 2% in 60 days?
 
The price will drop, remember the inverse relationship. In this instance, the price drops 3.5% to 103.26
Hidden Risk In bonds

The moves can be more extreme if yields increase even more.  In this example, we show what happens to the price if yields increase to 2.5% in 6 months.  

The price of this bond drops to 98.68, a decrease of 7.5%

Hidden Risks Bonds

If yields move high enough, the price decrease can be more like a stock investment.

Here we show what happens to the price of this note if bond prices move to 3% in one year.  

A price decrease of 11% is not what anyone bargains for when they buy a so called “safe” investment.

Bond risk

Lower Return, Higher Risk

Right now, longer term bonds present a low return, higher risk environment. Investors buy these because they think they are safe. And if you hold this note until it matures, you’ll collect the interest and get your money back.
 
But you lock in a low return—1.6% over 10 years is not attractive. In the meantime you’ll see the value of this bond decrease when yields increase. And if you sell it before 2029, you’ll likely incur a loss.
 
This is why we have been using short term bond investments—with maturities of 1 year or less. There is less price fluctuation, and fewer opportunities for big price decreases as yields move higher.
Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Stay Informed.

What’s Happening Now is a podcast talking about current events which  impact your bottom line.  

If you would like to be notified when a new episode is released, sign up for our mailing list.  Just complete the form.

You can connect with us in other ways. 

Subscribe to our YouTube Channel

Like and follow our Facebook page

 

Join Our List Today!

* indicates required

Our Most Recent Videos

The 2020 Bear Market: Here’s Where We Are

The 2020 Bear Market Here is where things stand with the 2020 bear market, as of March 26. click to enlarge Some facts First let’s start with some facts. Current
Watch Now

3 Things To Know About Bear Markets

This is the first official bear market since 2009. In this episode, We'll share 3 things you should know about bear markets.
Watch Now

Should You Refinance Your Mortgage?

Should You Refinance Your Mortgage? One of the things not mentioned much in the wake of the big stock selloff was the impact on bonds and interest rates.  This has
Watch Now

Still Not A Bear Market

Still Not A Bear Market, Yet Right now, there is a lot of fear and panic on Wall Street. It looks and feels bad. Yesterday seemed to amplify those fears
Watch Now

Investing in Emerging Technology

Investing in emerging technology sounds exciting.  At least one of our listeners thought so.  He submitted a question wondering how we could invest in the following areas:

  • Artificial Intelligence
  • Internet of Things
  • Blockchain

We’ll share some ideas on this week’s episode of What’s Happening Now.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Below is a list of Exchange Traded Funds (ETF’s). Each focuses on one of these three areas of emerging technology.  We have also provided Links to specific information about the funds .  This is not an all inclusive list, there may be others. 
 
(Note:  This is not an endorsement or recommendation of any fund listed.  Please consider all factors before purchasing any investment.  Neal owns a small position in the fund ROBO as well as a small position in Amazon)

Internet of Things

Investing in Emerging Technology

Stay Informed.

What’s Happening Now is a podcast talking about current events which  impact your bottom line.  

If you would like to be notified when a new episode is released, sign up for our mailing list.  Just complete the form.

Join Our List Today!

* indicates required

The Mini Correction of 2019 (so far)

After July 26, the stock market has experienced a mini correction. And the financial media loves a big down day. They plant the seeds of the next financial Armageddon in our minds. Is it time to panic? Today we’ll address the drop and tell you where we are in the big picture.

What's Happening Now: The Mini Correction of 2019 (so far)

Audio Only Version

We know a lot of you visiting here may be using a cell phone.  And video uses more data.  If you would like to listen to the audio only version of this, click on the green play icon.

We also posted the graphs below for reference.

Stay Informed.

What’s Happening Now is a podcast talking about current events which  impact your bottom line.  

If you would like to be notified when a new episode is released, sign up for our mailing list.  Just complete the form.

Join Our List Today!

* indicates required

Our Most Recent Videos

The 2020 Bear Market: Here’s Where We Are

The 2020 Bear Market Here is where things stand with the 2020 bear market, as of March 26. click to enlarge Some facts First let’s start with some facts. Current
Watch Now

3 Things To Know About Bear Markets

This is the first official bear market since 2009. In this episode, We'll share 3 things you should know about bear markets.
Watch Now

Should You Refinance Your Mortgage?

Should You Refinance Your Mortgage? One of the things not mentioned much in the wake of the big stock selloff was the impact on bonds and interest rates.  This has
Watch Now

Still Not A Bear Market

Still Not A Bear Market, Yet Right now, there is a lot of fear and panic on Wall Street. It looks and feels bad. Yesterday seemed to amplify those fears
Watch Now

A More Conservative Approach

As the stock market and the economy have continued to chug along, we felt it was time for a more conservative approach.  Today we talk about some of the steps we are taking to reduce investment risk for our clients.  

What's Happening Now: A More Conservative Approach (4:36)

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  Is there a topic that has you curious?  We’d love to hear from  you.

 We’ll do our best to answer it in a future episode.  To submit your question, fill out the form.  If you prefer, you can send us an email directly.  That email address is neal@flemingwatson.com

Enter Your Question Here

Our Expectation: Stocks Will Act Like Stocks

We expect stocks to act like stocks. This means we believe—over the long term—they will perform well. They will generate the returns we need to improve our purchasing power and grow our assets.
 
It also means the growth won’t happen in a straight line. There will be periods of stress and pain along the way.
 
The market is at all time highs. And we haven’t seen a true bear market in over a decade. The current economic expansion is the longest on record. We felt it is time for a more conservative approach.  
 
Here is how we are doing it.

Step 1: Rebalancing

Rebalancing your account means we reset your asset allocation. Here is an example. A couple of years ago, John’s account had 60% of its value in stocks. The other 40% was in bonds. Because the stock market has done extremely well, the stock allocation grew to 65%.
 
Rebalancing his account sells some of the stock holdings and buys bonds. When complete, his allocation is reset back to 60% equity and 40% bonds.
 
In September, we will have an episode of Monday Morning Money about rebalancing.

Step 2: New Core Holdings

 Over the past two months, we have reviewed many of the core holdings in our portfolios. We determined several funds needed to be replaced. One of the by products of these changes was reducing some of the investment risk.
 
One tool we use to help measure the investment risk of our portfolios is a service called Riskalyze.  We measure the risk characteristics of the funds and ETF’s we use.  
 
Riskalzye also helps us to better understand how you feel about the risk and reward.  You can complete a brief survey to find your Risk Number.  There is a link below.  It costs nothing, and it takes 5 minutes or less to answer the questions.
blank

How Much is Too Much?

How much risk can you tolerate?  Would you be uncomfortable if your portfolio was down 10% in the next six months?  What about 20% or more?  Our 5-minute risk assessment questionnaire (powered by Riskalyze) will help you identify your appetite for risk and reward.  We can then take a look at your accounts to see if your investments align with the results. 

Taxes Matter

Most of these changes will occur in IRA’s or other types of accounts which don’t create a tax bill for you. If there are changes which need to be made in a taxable account, we will call you to discuss the tax implications.

Stay Informed.

What’s Happening Now is a podcast talking about current events which  impact your bottom line.  

If you would like to be notified when a new episode is released, sign up for our mailing list.  Just complete the form.

Join Our List Today!

* indicates required
Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Our Most Recent Videos and Podcasts

The 2020 Bear Market: Here’s Where We Are

The 2020 Bear Market Here is where things stand with the 2020 bear market, as of March 26. click to enlarge Some facts First let’s start with some facts. Current
Watch Now

3 Things To Know About Bear Markets

This is the first official bear market since 2009. In this episode, We'll share 3 things you should know about bear markets.
Watch Now

Should You Refinance Your Mortgage?

Should You Refinance Your Mortgage? One of the things not mentioned much in the wake of the big stock selloff was the impact on bonds and interest rates.  This has
Watch Now

Still Not A Bear Market

Still Not A Bear Market, Yet Right now, there is a lot of fear and panic on Wall Street. It looks and feels bad. Yesterday seemed to amplify those fears
Watch Now

Is This The Top of the Stock Market?

The S&P 500 recently closed over 3,000.  And many people are wondering if this is the top of the stock market?  At least one firm believes stocks are headed higher—much higher.  

Podcast—What's Happening Now: Is This The Top of the Stock Market? (3:40)

We have been following First Trust Portfolio’s commentary for some time.  You can read their post about their increased forecast and the methodology they use, here

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  We’ll create a video or audiocast of the answer and post it here on our website, our Facebook page, and our YouTube channel.

Complete the form to the right to submit your question or comments.

Enter Your Question Here

Is This The Top of the Stock Market?

As most of you know, we are not in the prediction business.  Most who are have limited success.  But, it rarely stops anyone from trying.  

The stock market will either go up or down from here.  The only way we will know who guessed correctly is to wait and see.  We rarely believe any of them to be reliable indicators of future performance.

We are certainly hopeful the S&P 500 passes the 3,250 mark.  But, if it doesn’t, we won’t be surprised.

Is this the top of the stock market

Don't Miss The Next Episode of What's Happening Now

What’s Happening Now is a short podcast. It covers current events and how they could impact your bottom line. 

Don’t miss the next episode.  Sign up for our weekly email today.

Get Free Weekly Tips!

* indicates required
Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Watch Other Episodes of Monday Morning Money

Catch up on the previous episodes of our weekly video series, Monday Morning Money.  You can also see them on our Facebook page and our YouTube channel.

Our Most Recent Videos

The 2020 Bear Market: Here’s Where We Are

The 2020 Bear Market Here is where things stand with the 2020 bear market, as of March 26. click to enlarge Some facts First let’s start with some facts. Current
Watch Now

3 Things To Know About Bear Markets

This is the first official bear market since 2009. In this episode, We'll share 3 things you should know about bear markets.
Watch Now

Should You Refinance Your Mortgage?

Should You Refinance Your Mortgage? One of the things not mentioned much in the wake of the big stock selloff was the impact on bonds and interest rates.  This has
Watch Now

Still Not A Bear Market

Still Not A Bear Market, Yet Right now, there is a lot of fear and panic on Wall Street. It looks and feels bad. Yesterday seemed to amplify those fears
Watch Now

2019 Mid Year Update – Wow!

The days have flown by, and it is time for our 2019 Mid Year Update. It’s hard to believe the year  is half over.  In today’s podcast, We’ll talk about how things did in the investment world and share some interesting facts. 

Podcast: 2019 Mid Year Update (7:39)

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  We’ll create a video or audiocast of the answer and post it here on our website, our facebook page, and our YouTube channel.

Complete the form to the right to submit your question or comments.

Enter Your Question Here

In a Word, “Wow!”

It is hard to imagine getting off to a better start.  Every major asset class surged higher. 

US Stocks

The US Stock market started with a bang.  Following a rough fourth quarter in 2018, all segments of the US stock market have surged to start the year.  Large company, mid caps, and small caps all posted double digit gains.

International Stocks

Likewise, companies outside the US shined brightly. Both developed economies and emerging nations posted strong results.

Bonds

When interest rates fall, as they did in the first half, bond prices go up.  The bond market was solid in the first half.

Alternative Assets.

Real Estate generated the best results of the first half.  Natural resources and gold also produced strong results.

Mid Year Update 2019: The Asset Allocation Quilt

Our Asset Allocation Quilt is always a popular post.  This abbreviated version shows the annual returns over the past several years.  And, it also includes the results for the first half of 2019.

Click on the image above to enlarge.  To see the funds we use as proxies for the asset class returns, click on the image to the left to enlarge.

If you would like to download a copy of the Mid Year Update 2019 Asset Allocation Quilt. Click Here.

Looking ahead to the Second Half....

It was an interesting first half.  Talk of a recession and the ongoing trade war between the US and China dominated the recent headlines.  And the Wall Street “brain trust” remains cautious with their second half predictions.   The average prediction for the second half calls for a flat stock market.  An outcome which would disappoint nobody.  But remember, take those predictions with a grain of salt.  What will happen in the second half of 2019?  Stay tuned.

Two interesting nuggets...

2019 is the Third Year of the current presidential term.  The average return during the past 23 third year’s has been 16.1%.  This goes back to 1927. 

1939 was the last time the stock market was negative during the third year of a president’s term. 

While these tidbits are interesing, they offer no predictive value. As we commonly say, past performance does not predict future results. 

Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

Our Most Recent Videos

The 2020 Bear Market: Here’s Where We Are

The 2020 Bear Market Here is where things stand with the 2020 bear market, as of March 26. click to enlarge Some facts First let’s start with some facts. Current
Watch Now

3 Things To Know About Bear Markets

This is the first official bear market since 2009. In this episode, We'll share 3 things you should know about bear markets.
Watch Now

Should You Refinance Your Mortgage?

Should You Refinance Your Mortgage? One of the things not mentioned much in the wake of the big stock selloff was the impact on bonds and interest rates.  This has
Watch Now

Still Not A Bear Market

Still Not A Bear Market, Yet Right now, there is a lot of fear and panic on Wall Street. It looks and feels bad. Yesterday seemed to amplify those fears
Watch Now

A Recession Knocking On The Door

If my inbox, the headlines, and the magazine covers are any indication, there is a recession knocking on our door.  How could that affect your accounts? And, what can we do?  That’s our topic for  this episode of What’s Happening Now.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  We’ll create a video or audiocast of the answer and post it here on our website, our facebook page, and our YouTube channel.

Complete the form to the right to submit your question or comments. 

Enter Your Question Here

The Inverted Yield Curve

The yield curve “inverts” when yields on short term debt exceed those for long term debt.  Right now the yield for 3 month notes is higher than 1 year, 3 year, 5 year, and 10 year bonds.

This has happened nine times since the 1960’s.  Seven of those periods came before a recession.

Whether it predicts a recession this time remains to be seen.

Last week we talked about the most recent Social Security Scam.  You can listen to that episode here.

Are You Planning For Retirement?

If you are planning for your retirement, be sure to check out our video series, Monday Morning Money.  We created a number of videos to give you something to think about as you consider your retirement.   To watch, click here.

Financial Planning

Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors  He typically works with people who are planning for retirement.  Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio.  Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.

How Would A Roth IRA Impact Your Retirement?

We all know Roth IRA’s allow for tax free growth.  But how will a Roth IRA impact your retirement?  We’ll take a look at a couple of real life examples to show you the real value of these accounts.

Video: How Would A Roth IRA Impact Your Retirement?

Plan for A Better Retirement

We created Monday Morning Money with one goal in mind.  Give you information to inspire you to plan for a better retirement. 

We publish a new episode each week.  And, we will deliver it right to your inbox.

Don’t miss an episode, subscribe today!

Get Free Weekly Tips!

* indicates required

The Common Example.

Every advisor has used this example at some point in time.  But it doesn’t provide any practical answers.

The Impact Example 1 - Monthly Income

Here is what we typically see. People retire. They have this pile of money, and they need to get some income each month. In most cases, at least to this point in time, the money has been in the traditional 401(k) or IRA accounts.

They set up monthly distributions from their accounts. But most people don’t like to pay quarterly tax estimates. So they have taxes withheld from those withdrawals.

So if we use the $600,000 accumulation from the first graph, and use the 4% rule, it works out to a gross monthly income of $2,000.  Here is how we see this work in real life.

But with the Roth IRA, there are no taxes.  You get to keep the entire distribution.  

Over time, the impact of this can be huge.  Over the course of 23 years, the amount of taxes you pay can be significant.

Let’s say you start at $2,000 per month.  You increase it each year for inflation.  Over 23 years, you’ll take total distributions of $750,000.  Of that, $150,000 would go to the state and federal government.  With the Roth, it all stays in your pocket.  That’s a pretty big impact.

 

The Impact Example 2 - Large One-Time Distributions

Here is the second way a Roth IRA would impact your retirement.  People will often need to take a larger one time distribution from their IRA. Maybe it is a car purchase, or a major home repair, or a vacation. They may call and need $10,000.

 If that money comes from a traditional IRA or 401(k), we  often have to “gross up” the distribution. They want to NET $10,000. That means we have to increase the amount they take out to cover thetaxes.   In this example, to get $10,000 they have to actually withdraw $12,500. The government gets that $2,500.

But if you use a Roth IRA, you take out $10,000 and the $2,500 stays in your account.

The Impact Example 3 - Required Minimum Distributions

We still see people who don’t depend on their IRA’s for income. And then they get to age 70 1/2 and get a nice tax surprise.

If the money is in a Roth, no tax surprise.

This also impacts inherited IRAs. You do have to take money from an inherited roth account. But unlike the inherited IRA, you don’t have to pay taxes on those withdrawals.

At least your kids will be glad you have the Roth IRA to pass on to them.

Watch Other Episodes of Monday Morning Money

Catch up on the previous episodes of our weekly video series, Monday Morning Money.  You can also see them on our facebook page and our YouTube channel.

Have To Retire Early? Here is What Happens.

Nearly half of Americans plan to work beyond age 65. But studies show only 19% are able to do so. For some retiring at a younger age is a choice. They've saved enough and confidently walk away. But what if you have to retire early? What happens to your finances?
Read More

How Does Your Age Affect Your Retirement?

Last week we asked the question, “Will your retirement savings last 23 years?”  Today we ask, how does your age affect your retirement? Video: How Does Your Age Affect Your
Read More

Will Your Retirement Savings Last 23 Years?

Will your retirement savings last 23 years?  That is the big question. How do we use our savings to generate income, and not see our balance go to zero before
Read More

A Million Dollar Coffee Habit? Really? Ep 12

About once a week, Susan and I will stop for a latté at Stoked Coffee.  Each one costs a little more than $3.00.  Some people stop far more often.  Will
Read More

What’s Happening Now: Death of the Stretch IRA

The US House and Senate are working on legislation which will change Required Minimum Distributions.  Those changes could mean the death of the stretch IRA.

Listen Now: Death of the Stretch IRA (6 Minutes)

You can enjoy this and other content on our youtube channel.  Just click the button to the right, and be sure to subscribe.

What's On Your Mind?

Do you have a question about what’s happening in the world of finance or investing?  We’ll create a video or audiocast of the answer and post it here on our website, our facebook page, and our YouTube channel.

Complete the form to the right to submit your question or comments.

Enter Your Question Here