Retirement Wealth

September 2023

When reaching the later years in life it’s advantageous to have retirement savings because Social Security will not be enough. Today pension opportunities are rare. The onus of building retirement is on the individual. Understand there are NO guarantees when you reach senior years of life that one will be employable for a variety of reasons. Therefore if you are dependent on the government or others in retirement you become a burden rather than an attribute to society and family. Saving for retirement needs to be your priority, by creating retirement wealth makes you an enabler versus an encumbrance.

Depending on your employment status and earnings there is numerous tax advantageous retirement mediums. Skim through the slider below on some notable savings vehicles and dive into Investopedia to learn more about those possible options.

Traditional IRA

A long-term savings account that individuals with earned income can use to save for the future while enjoying certain tax advantages. The IRA is designed primarily for self-employed people who do not have access to workplace retirement accounts. Traditional IRA has the lowest contribution allowance for tax deferred benefits.

Roth IRA

A long-term savings account that individuals with earned income can use to save for the future while enjoying certain tax advantages. The Roth IRA is designed primarily for self-employed people who do not have access to workplace retirement accounts. This Roth IRA has the lowest contribution allowance that grow tax-free and be withdrawn tax-free.

401(k) Plan

A 401(k) plan is a company-sponsored retirement account to which employees can contribute income, while employers may match contributions. The employee gets to choose among a number of investment options, usually mutual funds. 401(k) has good tax benefit contribution allowance.

403(b) Plan

The 403(b) plan, which is closely related to the better-known 401(k) plan. retirement account designed for tax-exempt organizations. Participants may include teachers, school administrators, professors, government employees, nurses, doctors, and librarians. There’s also an option for the employer to match part of the employee’s contribution. 403(b) has good tax benefit contribution rates.

401(a) Plan

401(a) plans are usually used by government and non-profit organizations. These plans give the employer a larger share of control over how the plan is invested. 401(a) has good tax benefit contribution rates.

457 Plan

A 457 plan is a tax-advantaged retirement savings plan offered to employees of many state and local governments and some nonprofit organizations. Like the401(k) plan in the private sector, the 457 plan allows employees to deposit a portion of their pre-tax earnings in an account. 457 has good tax benefit contribution rates.

Simplified Employee Pension (SEP) IRA

Small businesses and self-employed individuals can use SEP IRAs to meet retirement savings needs. contribution limits are annual and often higher than standard IRAs and 401(k)s. A SEP IRA is an attractive option for many business owners because it does not come with many of the start-up and operating costs of most conventional employer-sponsored retirement plans.


A SIMPLE IRA is a retirement savings plan that most small businesses with 100 or fewer employees, self-employed or sole-proprietors can use. This plan has restrictive rollover rules and fair tax benefit contribution rates.

SIMPLE 401(k)

A SIMPLE 401(k) stripped-down version of a regular 401(k) account geared toward small business employers with 100 or fewer employees and self-employed individuals. This plan has restrictive rules and fair tax benefit contribution rates.

Do take advantage of your employer retirement plan, however I recommend opening an IRA no matter what your employment status is. This will assure you have a place to start saving and the ability to rollover qualified retirement accounts into your IRA. An IRA can provide true investment flexibility and enhanced ability in controlling expenses and fees. You can set up an IRA at almost any bank, credit union, brokerage, or other financial institution. My recommendation is a IRA brokerage account where I’ll provide you information on time tested, simple and effectual methodology in building retirement wealth.

The Art of Compounding

Compounding is a financial phenomenon that makes time work in your favor. Let’s pretend that your IRA has $1,000 balance earning 7% annual gains and is sitting idle for eleven years while you work and participate in your employers retirement plan. After eleven years you leave your employer for greener pastures. You then review your IRA and viola your balance is over $2000. That’s the art of compounding and you have the ability to rollover your employers qualified retirement plan into your IRA. You might counter with the fact that 7% is a fictional return. Historically you would be wrong.

Magic of Compounding Example

Starting at the age of 30 with a goal to reach one million utilizing a traditional IRA with today’s (2023) contribution rates ($6,500/$7,500 annually disbursed monthly) at average market gains of 7% annually over the time span.

  • 35 years old your IRA is worth $38,500 3% 3%
  • 40 years old your IRA is worth $92,500 9% 9%
  • 45 years old your IRA is worth $168,300 17% 17%
  • 50 years old your IRA is worth $274,500 27% 27%
  • 55 years old your IRA is worth $429,600 42% 42%
  • 60 years old your IRA is worth $647,000 64% 64%
  • 65 Years old your IRA is worth $952,000 95% 95%
  • 66 years old your IRA met its goal and is worth $1,026,300 100% 100%

Standard & Poor’s 500 Index (S&P 500)

Standard and Poor’s is a market weighted index of leading publicly traded companies in the U.S. that began documenting results in 1928. In 1957 Standard and Poor’s adopted 500 stocks to index. The S&P 500 is the benchmark performance of the U.S. stock market.

Historical annualized return of S&P 500

  • 1928 through 2022: 9.8%
  • 1957 through 2022: is 10.1%

Today anyone can buy and hold an S&P 500 like index funds, offered by many financial firms. Index fund products of a blended market portfolio was perfected by Vanguard founder ‘Jack Bogle’ who made Index Funds available to all in 1976. Today there are literally hundreds of index funds to choose from.

Exchange-traded funds (ETFs)

Exchange-traded funds are consortium of investments with many securities that operates like index funds and mutual funds. ETFs are bought and sold on a stock exchange the same way as regular company stock. An ETF is an easy means and low cost method in investing both national and international markets. ETFs became available in early 2000’s which provided the average individual investor access to low cost passive index fund investing. ETFs offer diversification and is less expensive and better than most mutual funds.

Brokerage Account

A brokerage account provides a means for individual investors to buy and sell many different kinds of investment securities, such as stocks, bonds and ETFs. Opening a brokerage account is as easy if not easier then opening a bank account. There are numerous reputable brokerage firms that offer IRA’s.

I would like to invite you to invest with M1 Finance. It’s my brokerage account of choice.

M1 is a great platform for long-term wealth building. M1 investment accounts offers commission-free trading of securities and the ability to automate funding, transfers and investing that utilizes fractional shares and ETFs. You setup investments using pies, with slices of different securities making up the whole. Fine-tune the proportions of different stocks and ETFs in your strategy. Create a Pie from scratch or add slices of expert pies M1 has curated around different goals. When it’s time to invest, your funds will be allocated in proportion to the slices in your Pie.

Retirement Savings Strategies

Open an IRA

Yes have an at the ready IRA account, in fact every family member no matter what age should have one. When not participating in a qualified retirement plan through an employer continue annual wealth building via your IRA. Depending on your situation you may be able to contribute to your IRA and an employer-sponsored retirement plan, always review your options.

Review what the financial gurus say about both traditional IRA and a Roth IRA, then choose which one best suites your needs. It would be very sound to have one of each, you never know what the future holds. Having both will accommodate rollovers of both a tax-differed and Roth type qualified retirement plans. And you have the option to save in either IRA during the year. Just remember to review government constraints in contributions and other nuances.

Participate in Qualified Retirement Plans

Most employer-sponsored retirement plans you can contribute significantly more than a traditional or Roth IRA. However you may not have as much investment options than your traditional or Roth IRA. This will require you to study your employer-sponsored plan and choose a most diverse fund and be watchful of the investment fund fees.

When you leave an employer its likely your retirement account will remain with your employer and you will no longer be able to make contributions. Review what actions you do have with your past employer-sponsored plan but be aware these plans have management fees and fund investment fees that are typically higher of those with an IRA brokerage account.

Religiously Save

Of course save you cannot build wealth without saving. The professionals recommend saving 10% of your income. Everyone’s financial needs are different. Save what you can! And make it a goal to meet the contribution limits of whatever retirement saving vehicle you are funding at the time.

You may be temped to pull money from your IRA or draw a loan from your employer-sponsored retirement plan. Remember you build wealth by buying and holding where the art of compounding takes shape. You diminish wealth building by withdrawing. Best to deplete all other resources before withdrawing from your IRA. Borrowing from an employer-sponsored plan is not a good idea but better than withdrawing.

Don't Leave Free Money on the Table

Many employers offer matching funds to a certain percentage of your income. Say for example they’ll match you dollar for dollar up to 3% of your income. Your now saving 6% not to far from that 10% recommended by those financial gurus! In actuality any matching funds offerings belongs to you, don’t let them keep it.

You may be able to take a federal tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan, called Saver’s Credit. If you have a modest income it would be prudent to look into. Based on your income and marriage status you may qualify for this federal tax credit. For example if you’re married and you funded $4,000 in a qualified retirement fund you may receive $2,000 tax credit. Review this annually the government is always changing the rules.

Understand Early Withdrawal Penalties and Exceptions

Traditional IRA’s and other tax-differed qualified retirement plans have a 10% early withdrawal penalties on top of paying income taxes. Roth IRA’s have 10% early withdrawal on earnings (not contributions). For IRA’s early withdrawal is younger than 59-1/2, Roth IRA also requires a 5 year vestment period. In some cases 401k’s you can draw without penalty at age 55, there are specific rules so be judicious. However there are some government exceptions.

There’s better than a dozen IRA exceptions in avoiding the 10% early withdrawal penalty. Each has specific restrictions that you must understand before taking the early withdrawal. Here are a few possible exceptions like permanent disability, call to active duty and my favorite Substantially Equal Periodic Payment (SEPP). These exceptions are hard to decipher so when in doubt consult with a trusted tax professional.

Be Watchful of Management Fees

If you thoroughly review this article and read the resources provided on passive ‘Index Fund’ investing, then you should be comfortable in setting up a managing you’re own brokerage account. Make sure to rollover any outstanding qualified retirement plans into your chosen IRA brokerage account. Most employer-sponsored retirement plans have management fees and investment fund expenses that you pay. Management and/or financial advisor fees can be anywhere from .25% to 1% or more. You need to be vigilant.

Let’s say you have $100,000 being managed for you at .25% ($250) annually. Over 20 years your cost is not $5,000, the cost can be well over $11,000 lost in fees and compounding interest. Additionally if you have a goal to be met it will take much longer (many years) to reach that goal paying unneeded portfolio management fees.

Notes – Resources – Credits


Bogleheads are passive investors who follow Jack Bogle’s simple but powerful message to diversify and let compounding grow wealth. Truly an excellent source, follow their podcast and read their bogleheads’ books.

The Bogleheads’ Guide to the Three-Fund Portfolio: Describes the most popular portfolio on the Bogleheads forum. This all-indexed portfolio contains more than 15,000 worldwide securities, in just three easily-managed funds, and has outperformed the vast majority of both professional and amateur investors.

The Boglehead’s Guide to Investing: Is a DIY handbook that espouses the sage investment wisdom of John C. Bogle. This witty and wonderful book offers contrarian advice that provides the first step on the road to investment success, illustrating how relying on typical “common sense” promoted by Wall Street is destined to leave you poorer.

The Bogleheads’ Guide to Retirement Planning: a group of like-minded individual investors who follow the general investment and business beliefs of John C. Bogle, are here to help. Filled with valuable advice on a wide range of retirement planning issues, including some pearls of wisdom from Bogle himself, this book has everything you need to succeed at this endeavor.

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Historical annualized return of S&P 500

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Saver’s Tax Credit: Meaning, Restrictions, Example

9 Penalty-Free IRA Withdrawals


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