Podcast Episode 285: RMDs, Savings, Mutual Funds & Other Mailbag Questions

Providing answers to your financial questions is one of the things we enjoy doing most each day and our podcast provides a great outlet for that to happen. On this episode, we’re going to take four questions on RMDs, savings, planning mistakes, and whether ETFs or mutual funds are the better investment.

Let’s get started with a question from someone who’s about to reach the age where they have to take Required Minimum Distributions and don’t know which account to pull from first. This is a great question because most people have a majority of their retirement savings in pre-tax accounts, which means the money that comes out will be taxed on its gains.

RMDs can be confusing because you have to take out a certain amount each year and there’s a stiff penalty if you fail to do so. The good news is you’ll have options for which account you can withdraw the money from and we can help you do that in the most efficient way possible. Let us spend some time looking at what’s best for you.

The next question comes from someone who has been told they have too much money in savings. This person has over $110,000 in cash because they want to feel safe in case of an emergency. We can’t really tell you the exact amount you should have in savings, but the good news is banks are paying a little better interest these days so you are getting something out of that money.

But this question comes down to both financial and personal reasons. You have to consider how much will help you sleep at night but you also want to ensure that you’re keeping pace for retirement. One thing we might look at is how the rest of your money is performing. If you have other investments that are doing well, then that gives you a little more room to have this safe money. Ultimately, we all need to have an emergency fund but we also don’t want it to be at the expense of our future.

The next question comes from another Eric, which might be a first on the show. What are the common mistakes in retirement planning when someone tries to do it without a financial advisor? A lot of people early in their retirement don’t look far enough out. This isn’t about spending money. It’s about keeping money. You need to be thinking about RMDs, Roth conversions, and other tax planning strategies to keep as much of your money for retirement. Many of these things need to be done early in retirement and you don’t want to miss that.

The other aspect of your plan that is easy to overlook on your own is trying to figure out how much money you can put aside for later and allocate that for growth. If you can get an idea of that number, it allows you to take a little risk in exchange for better returns. How you save money in retirement and how you manage money in retirement are drastically different than it was while you were working and that’s difficult for most people to navigate.

Our final question asks whether ETFs or mutual funds are a better investment. Things have changed a lot over the years and many mutual funds have gotten so large as more and more money has come in. You need to be critical of the value you’re getting and some of these mutual fund options don’t have the same value they used to. There are pros and cons to both but the active management of these mutual funds doesn’t usually make them a better option than ETFs these days.

We appreciate all the questions on this show and encourage you to take advantage of our complimentary Money Map retirement review to start answering the key questions you have about your financial future.

Here’s what we discuss in this episode:

0:26 – Mailbag question on RMDs

2:44 – Mailbag question on keeping money in savings

4:18 – Mailbag question on retirement planning mistakes

7:27 – Mailbag question on ETFs and mutual funds