Retirement Wealth Primer

The Basics

This Retirement Wealth Primer article is for those who do not have access to workplace retirement, are self employed, small business owners or left a workplace retirement program.

At 60 years old it would be nice to have retirement wealth because Social Security alone is not enough. Start retirement wealth building as early as possible. Understand there are NO guarantees when you reach senior years of life that one will be employable for a variety of reasons.

The regime is simple decades before 60 years old is the period of time one saves, invests and creates retirement wealth by the art compounding. Compounding is a financial phenomenon that makes time work in your favor. Sometime after your 60th birthday the goal is to sustain your retirement funds while you withdraw your needs to live comfortably.


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%

The goal is to buy and hold (passive investing) like an S&P 500 index fund.

The thought of a blended market portfolio is an old theory but it was Vanguard founder ‘Jack Bogle’ who made a 500 index fund available to commoners like us 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 mimicking the S&P 500. ETFs became available in early 2000’s which provided the average individual investor (like you and me) access to low cost passive index fund investing. ETFs offer low-cost diversification, trading, and is less expensive and better than most mutual funds.


Individual Retirement Account (IRA)

IRA was introduced by congress in 1974 called the ‘Employee Retirement Income Security Act’. An IRA is a long-term savings account for people who do not have access to workplace retirement or are self employed. Depending on where you house an IRA account you can have the greatest control over your investments with the least amount of fees in the industry.

NOTE: Be warned the government is truly biased, meddlesome and manipulative in regulating retirement plans. Our government friends constantly change the rules. However the tax benefits makes authorized retirement vehicles advantageous over conventional (non-retirement) wealth building means.

Below are some basic rules for the Traditional IRA and Roth IRA for any individual, and Simplified Employee Pension Plans IRA (SEP IRAs) for self-employed individuals and small-business owners.


Roth IRA

Traditional IRA



Contribution Limits

$6,500; $7,500 if age 50 or older.

Up to $66,000 depending on wage/profit.


Income Limits

Single: Starts at $138,000 and phases out completely at $153,000.

Married: Starts at $218,000 and phases out completely at $228,000.

None, but tax deductibility is impacted if participating in an employer plan.

Tax Treatment

No tax deductions.

Tax-free withdrawals in retirement.

Contributions Tax deductible.

Income taxes owed on withdrawals.

Withdrawal Rules

Contributions can be withdrawn tax-free and penalty-free anytime. Five years after your first contribution and age 59½, earnings are tax-free.

Withdrawals are penalty-free beginning at age 59½. Withdrawal prior to age 59½ is subject to 10% additional tax penalty. There are some IRS exceptions to the penalty.

Married? Spousal IRA (Traditional IRA and Roth IRA) allows either working spouse to contribute earned income to each other IRA’s. This comes in handy if a spouse for some reason brings in no income or very little income. Reference the NOTE above and get an understanding of the IRS spousal IRA rules.

A spouse or any family member can become an employee under the SEP IRA.


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.

There are many reputable brokerage firms that offer all three IRA’s mentioned above. For as little as $500 and IRA account can be opened. Open a preferred type of IRA in your chosen brokerage firm. I use M1 Finance, a buy and hold focused firm. Having an IRA gives you the ability to rollover other qualified retirement plans.

Start making contributions to your IRA as soon as feasibly possible. I highly recommend every time you get paid to tax yourself 10% toward your retirement contribution until your annual limit is met.

If you have some qualified retirement programs for rollover from previous employers begin a strategy to roll them into your IRA(s). Be aware there are onerous rules and tax differences when rolling over into a Traditional IRA or Roth IRA. Having two IRA accounts a Traditional IRA and a Roth IRA at the ready is a sound decision.


Index Fund Investing

In order to sustain your wealth one needs to keep pace with an existing market index. For example the S&P 500 stock market index measures the performance of about 500 companies in the U.S. the S&P 500’s performance offers a picture of the economic health of U.S. markets. An index fund is made up of the same investments that make up the market index it tracks. The performance of the index fund closely mirrors that of the index with no hands-on management. Passive investing is a strategy where one builds a simple index fund portfolio reflecting existing market indexes. It can be as simple a three fund portfolio where it is reviewed and re-balanced once a year.

There are very few active management investment gurus who can buy or sell specific investments and beat the S&P 500 market over time. Most active traders do terribly compared to the S&P 500 index. Do not try to beat the market at any means.

Start out with a 3 fund portfolio that is moderately aggressive like…

  • 60% Vanguard Total Stock Market ETF (market symbol: VTI)
  • 20% Vanguard Total International Stock ETF (market symbol: VXUS)
  • 20% Vanguard Total Bond Market ETF (market symbol: BND)

This is passive investing where you buy and hold and periodically re-balance. Most brokerage firms have great automation that will automatically invest your contributions and re-balance based on a trigger or time frame. Meaning once set-up its hands off and enjoy life your way because you have retirement wealth building on autopilot.


Additional Resources

Bogleheads are passive investors who follow Jack Bogle’s simple but powerful message to diversify and let compounding grow wealth. Truly an excellent source, I follow their podcast and read the 3 bogleheads’ books.

Good blogs on financial matters, do yourself a favor and plug them into you news feed or subscribe to their newsletter.

A decent brokerage firm M1

Create a my Social Security account it provides details of your past income and estimates future benefits that you can plug into the retirement wealth spreadsheet below.

Perform an Internet search for retirement savings calculator they are plenty out there.

Or install LibreOffice on your PC/Laptop and email me (from the business card you received) and I’ll send the retirement wealth spreadsheet I created allowing you to create different scenarios in building Retirement Wealth.

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