Everything You Know About Retirement Planning Is Probably Wrong -

During their working years, people scrimp and save to set aside capital to invest in the markets to fund their retirement. Throughout, they slavishly monitor their portfolio’s progress against key market indexes to assess their progress. Yet, in most cases, this common approach fails to accurately tell investors what they need to know the most: Where they stand relative to meeting their future retirement needs. If you’re worrying about how your portfolio performs every year, you may be fine come retirement — or you could be in for a rude surprise when your assets come up short. You might find that everything you thought you knew about preparing for retirement was flat wrong. Instead of fixating on relative performance, some institutional investors such as many pension funds, use a metric known as a funded ratio. Applied to an individual’s situation, this ratio is the sum of your current assets and retirement income streams (Social Security and any pensions) over your eventual retirement expenses, including taxes. If your assets and retirement income equal your expenses, your funded ratio is 1. Less than 1 means you may be underfunded, and more than 1 means you’re in good shape. This may sound a bit technical, but at its core, it’s quite simple: It shows what portion of your future total retirement expenses you’ll likely be able to pay, based on where you are now. The reason that pension funds use this measure is that they have to write checks to investors who are withdrawing their pension assets when they retire. So it’s only logical for them to constantly monitor their status against this goal. Your situation is probably similar. You’re saving and investing because you know you’ll have to write checks during retirement and you don’t want to come up short, so you should gauge your progress against that goal. But if you’re obsessing over how your portfolio did last year against certain benchmarks you’re not doing that. In some years you may beat the S&P 500 and in others, you may not. But when it comes time to retire, if you’ve beaten the index a lot, does it matter if you still don’t have enough assets? Gauging your performance against benchmarks is the mentality of fund managers who want to show investors how they did relatively well even in bad market years. If you’ve adopted this mentality and constantly worry about how your portfolio is doing at any given moment instead of looking at your big retirement picture, you have a lot of company. Most individual investors spend too much time thinking about how their investments are doing in the abstract instead of thinking about their total assets in the context of the cash they’ll actually need for retirement. Yet the value of your current assets is clear, and realistic retirement expenses are fairly predictable. The future performance of the markets is a big unknown. And fixating on benchmarks when you should be focusing on your funded ratio can lead you to take actions that result in fewer retirement resources and a lower funded ratio — meaning an inadequate capacity to pay your expenses during retirement. Using a funded ratio keeps you in contact with the reality of your future life in retirement, and gives you cues to what you should or shouldn’t be doing now with your investments.

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Review: Jaguar XF 3.0 Sport

Review: Jaguar XF 3.0 Sport

It seems that whenever you read a review of a Jaguar, it’s never of a model that most people buy. It generally has a supercharged V-8 which is powerful enough for law enforcement to be on a first name basis with the driver. Its exhaust is loud enough to force the homeowners’ association to call an e…

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Preventing a Tax Audit Is Easier Than You Think -

The chances of receiving an audit notice from the Internal Revenue Service are lower than most people think. “We audit about one percent of returns every year,” says IRS spokesman Eric Smith. That number is the lowest rate since 2005, in part because the IRS says budget cuts have it operating at its lowest level since 2008. That means roughly 46,000 audits will fall through the cracks this year. Smith says if you do get audited, good record-keeping is always worthwhile. “If you have good records, chances are you won’t have a problem,” Smith says. “If you can verify the deductions that you took, the credits you claimed, that’s what we’re going to be looking for.” Accuracy is another thing the agency likes when examining tax returns. “When your return is right to start with, the chances that you’ll hear from the IRS in any fashion really go down,” Smith says.

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