What Exactly Is Deferred Compensation?

Basically, it’s a way to set aside a chunk of your paycheck now and take it later, usually when you retire. Why would you do that? Well, the big idea is that you’ll probably be making less money when you retire, so you won’t owe as much in taxes when you finally withdraw it.

Sounds ok, right? Hold up though—there’s a catch. You have to decide up front how you’re going to invest that money and when to take it out. And once you make those choices, you’re stuck. There’s not much room to change your mind later, unlike with your 401(k).

Should You Really Sign Up?

Before you go signing on the dotted line, ask yourself a few key questions:

1. Is your company rock-solid?

Listen, a deferred compensation plan is like saying, “Here, boss, hold onto my money for me.” If your company goes belly up, there’s a chance you might lose everything you deferred. It’s not protected like your 401(k), and you can kiss that IOU goodbye.

2. How much of your money is already tied to the company?

Got stock options? Restricted stock units (RSUs)? Maybe you’re part of a stock purchase plan? All those things are tied to the company’s future, just like deferred comp. Putting more eggs in that same basket can be risky.

3. How soon are you retiring?

If you’re more than 15 years out from retirement, it’s hard to predict where your company’s going to be. I mean, no one saw General Electric hitting financial trouble a decade ago, right?

4. What’s your tax situation?

Deferring money might push you into a lower tax bracket now, and that could save you some cash. But the trick is thinking ahead: where’s your tax bracket going to be when you retire? It’s tough to say with tax laws changing all the time. I had a buddy who deferred $30,000 one year and saved himself about $2,400 in taxes. Not bad, but it’s not a guaranteed win every time.

The Two Big Decisions

If you decide to jump into a deferred comp plan, you’ve got two major decisions to make: **when** to take the money out and **how** to do it. These choices are locked in, so think it through.

A. When are you going to take it out?

The smart play is to wait until you’re retired. Why? Because you’ll probably be making less money by then, and that means less tax to pay when you finally take the cash. Now, sometimes life throws curveballs. In some cases, the triggers for deferred comp distribution are beyond your control. For example, in most cases you (or your heirs) will be forced to take distributions upon a separation of service, death or disability.

B. How are you going to take the money?

Most plans give you two choices: a lump sum or payments spread out over a few years. This is where timing is everything. You don’t want to start pulling cash until you’re done working.

Here’s what you need to keep in mind

   – **When do you plan to retire?** Make sure you’re actually retired before the money starts flowing.

   – **What about Social Security?** A lot of financial advisors suggest taking your deferred comp first and delaying Social Security as long as you can. Waiting boosts your Social Security benefits by about 8% per year, which is pretty sweet. A good advisor will analyze the pros and cons with you.

   – **Can you survive off your deferred comp and other savings until you hit 70½?** At that point, Uncle Sam’s going to force you to start pulling money out of your 401(k) and IRA.

   – **Lump sum or spread it out?** Whether you take one big payout or smaller ones over time depends on your retirement plan.

Final Words of Wisdom

1. Get yourself a financial advisor

Trust me, you want a pro helping you with this. Navigating deferred comp isn’t something you want to wing.

2. Pick smart investments

Just like with your 401(k), you’ll probably get to pick how the money’s invested. If you can, think about lowering the risk as you get closer to retirement.

3. Make sure it fits your big picture

Deferred comp can be a great tool, but it’s not a standalone thing. You’ve got to fit it into your overall retirement plan.

Bottom line:

Deferred compensation can be a smart move if you play your cards right. Just make sure you know what you’re getting into, plan carefully, and always be sure it works with your bigger financial goals.

Interested in learning how a Deferred Comp plan impacts you specifically, reach out anytime. We’re here to help.

House Writer is not a registered investment advisor or broker/dealer and does not make security recommendations nor provide financial advice. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult their personal tax and/or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.

The post Let Me Tell You About Deferred Compensation first appeared on Jarrod Adams.

Let’s dive deeper.

Reasons to Make This Change

What is your reason for considering a backdoor Roth? Some say it’s for retirement and some say it’s for legacy and others like the tax strategy. All are great answers.

Considerations

Let’s layout some of the major factors that impact this decision:

1.           Income Level: see part 1

2.           Tax Situation: What is your current and future tax situation? Converting traditional IRA funds to a Roth IRA triggers a tax liability on the converted amount. After you stop working, but before you start withdrawals and RMD’s is the “sweet spot” for a conversion. If you expect to be in a higher tax bracket in retirement or believe that tax rates in general will rise, converting to a Roth IRA may be advantageous. Additionally, many investors are wanting to leverage lower income tax brackets through 2025 before the provisions could sunset from President Trump’s tax overhaul.

3.           Existing Retirement Accounts: Consider your existing retirement savings and accounts. If you have significant traditional IRA balances, converting them to a Roth IRA might result in a substantial tax bill. On the other hand, if you have mostly Roth or 401k accounts, a backdoor Roth IRA might complement your existing strategy.

4.           Time Horizon: A longer time horizon allows for more potential tax-free growth in a Roth IRA, making the conversion more attractive.

5.           Estate Planning: Roth IRAs offer advantages for estate planning, as they are not subject to required minimum distributions (RMDs) during the account holder’s lifetime and can be inherited tax-free by beneficiaries. This can be a consideration for people who want to leave assets to heirs tax-efficiently. For some other types of accounts, there is a “10 year rule” that requires an inherited account to be depleted within 10 years. This triggers tax issues during the beneficiaries potentially peak earning years, ie highest tax bracket. The Roth IRA eliminates taxes for heirs who inherit the account.

Unplanned Impacts

Note that Roth conversions can boost income and therefore can affect income-related monthly adjustment amounts, such as some Medicare premiums. Be sure to consider the impact on those types of items if you have any.

Adams Investing Takeaway

Converting traditional IRA funds to a Roth IRA can offer significant tax and estate planning benefits, but it requires careful consideration of your current and future tax situation, existing retirement accounts, and potential impacts on income-related adjustments. Lean on a professional to help you through the many considerations.

Blog written by House Writer. House Writer is not a registered investment advisor or broker/dealer and does not make security recommendations nor provide financial advice. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult their personal tax and/or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.

The post Roth Conversions – Reasons to Make the Move Part 2 first appeared on Jarrod Adams.

The Basics

Imagine you want to contribute to a Roth IRA, but you make too much money. The IRS has this rule that says if you earn above a certain amount (161k single and 240k filing married in 2024), you can’t directly contribute to a Roth IRA.

You can’t make a direct contribution, but you can sneak in another way. Here’s how it works: first, you contribute to a Traditional IRA. Unlike a Roth, there’s no income limit for contributing to a Traditional IRA. But hold on, we’re not done yet.

Arriving at the Party

Next step, you convert funds from that Traditional IRA into a Roth IRA. This is where the magic happens. Since you’re converting from a Traditional to a Roth, there’s no income limit. Voilà! You’ve just snuck into the Roth IRA party.

Taxes, Timing, More

Now, there are a couple of things to keep in mind… actually there are A LOT of things to keep in mind but for the purposes of this article, we’ll keep it basic. See Part 2 for more complex situations. When you convert from Traditional to Roth, you’ll owe taxes on any pre-tax contributions and earnings in the Traditional IRA. So, if you’ve made deductible contributions to your Traditional IRA over the years, you’ll need to pay taxes on those amounts when you convert.

Also, timing is key. Ideally, you want to convert your Traditional IRA to Roth IRA as soon as possible. Why? Because if your Traditional IRA has earned any interest or gains, you’ll owe taxes on those too.

Lastly, when you convert your Traditional funds into Roth funds, you cannot withdraw the contribution amount for five years. You’ll want to factor that into your financial plan.

Wrapping It Up

The Backdoor Roth IRA is a sneaky (but legal) way for high-income folks to still enjoy the benefits of a Roth IRA. Just remember to dot your i’s and cross your t’s, especially when it comes to taxes. It’s always a good idea to consult with a financial advisor and a tax professional.

In Part 2 of this article, we’ll discuss some nuances and why a Backdoor Roth is not the best fit for everyone. As are most concepts in finance, there are a lot of things to consider.

***

House Writer is not a registered investment advisor or broker/dealer and does not make security recommendations nor provide financial advice. Readers are advised that the material contained herein should be used solely for informational and entertainment purposes, and to consult their personal tax and/or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.

The post Roth Conversions Gain Popularity first appeared on Jarrod Adams.

Back in 2015, a cart filled with staples like bread, milk, and eggs may have seemed relatively affordable. Fast forward to 2023, and you might find yourself doing a double-take at the checkout counter. So, what exactly has changed?

1. Shrinking Packages: Manufacturers, faced with rising costs, often resort to stealth inflation, reducing the size of products while keeping prices the same. That cereal box or bag of chips you loved in 2015? It’s likely smaller now, but you’re still paying the same amount.

2. Price Hikes: Basic goods like fresh produce and meat have seen significant price increases due to inflation’s relentless march. The prices of some fruits and vegetables have jumped by over 30% since 2015.

3. The Ripple Effect: Inflation doesn’t just affect the grocery store; it impacts the entire supply chain. Higher transportation and energy costs have driven up the price of everything from farm equipment to delivery trucks, pushing grocery costs even higher.

4. Impact on Budgets: For many households, grocery bills are a significant part of the monthly budget. As prices rise, families are forced to make tough choices, potentially sacrificing quality or variety to make ends meet.

The effect of inflation on groceries since 2015 is undeniable. While it may not make headlines like other economic factors, its steady presence is felt every time we shop for essentials. As consumers, it’s crucial to stay informed, budget wisely, and adapt to the evolving cost of living in an inflationary world.

The post Geez, What Happened To My Grocery Bill? first appeared on Jarrod Adams.

SOLVING A SPENDING PROBLEM

He said something to me that I’ve heard before, yet it still caught me. He said “I’m going to have to spend a lot of money next year so that I don’t have to pay the government so much.” Ah taxes! Yes, taxes.

I asked this somewhat new business owner if he had considered opening a SEP (Simplified Employee Pension) plan for his company. It could help with his “spending problem,” which is an uncommon, yet good problem to have. The contributions are tax deductible on the business return and it pushes pre-tax funds to your retirement accounts. Win-win? I think so.

SEPs ARE SIMPLER, CHEAPER, FLEXIBLE

From a setup and maintenance perspective, the SEP is fundamentally simpler, cheaper, and more flexible than other retirement plans, such as 401Ks. Contributions are made to an IRA account that is setup for each plan participant (note: the participant sets up the account, not the business owner – another win for those small business owners wearing all the hats and working long hours).

For our company SEP Plan, my accountant provided the one-page form to open the plan. I chose the plan options, signed, and submitted. Now all I do is calculate the SEP amount each year and write a check directly to my (and my employees) SEP-IRA accounts. I hand the check to the employee and allow them to make the deposit. It is that simple. Not only is my retirement account happy, but my employees are happy and feel appreciated.

PRE-TAX INVESTING OPPORTUNITY

The participants are getting money that has not been taxed. This money goes into an investment account and grows untaxed until they retire. When they start making withdrawals in retirement, income tax is charged. We talk a lot about compounding in these blogs (blog: compounding & coffee) and this is a great example of it. The retirement account has a compounding advantage because it is starting with untaxed dollars and has the time to do what compounding does best. Let’s look at the difference:

$10,000 pre-tax, invested, grows at 9% for 35 years ==> $204,140

$10,000 taxed means $7,800 invested, grows at 9% for 35 years ==> $159,229

The difference is $44,911 and that is only the first of (hopefully) many future SEP payments. Compounding is fire (as the kids say) but it needs time to work. Take full advantage of it at every possible opportunity. This is a nice opportunity that Uncle Sam has offered.

THE NITTY GRITTY DETAILS

• *Deadline – You can setup a SEP plan as late as the due date of your business’s income tax return for that year. So, you can still setup a plan now (Februaury 2023) to participate in 2022 contributions.
• * Participation – Employee Eligibility has flexibility in options to choose (who is eligible and when)
• * Contributions – Most common is paying a percentage of participant salary but you can also set a flat amount. It cannot exceed the lesser of:
• –25% of compensation or$66,000 for 2023 / $61,000 for 2022
  • –Self-employed may use a special calculation (see IRS site linked below)
• * A SEP-IRA is a traditional IRA and follows the same investment, distribution, and rollover rules.
• * Plan – There is quite a bit of flexibility in creating the plan and it can be changed quite easily in the future.

ADAMS INVESTING TAKEAWAY

SEP plans make sense for a lot of reasons but especially if you have a big profit to ‘burn’. Take care of your retirement and make your employees feel valued and appreciated while getting the tax deduction your company needs. The setup and maintenance is much easier than you think.

For more information on SEP Plans from the IRS, click here .

Author is not a registered investment advisor or broker/dealer and does not make security recommendations nor provide financial advice. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult their personal tax and/or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.

The post How to Spend Money in Order to Save Money first appeared on Jarrod Adams.

Rolling over a 401k is on the bottom of the list of things to do during tough times. Some of our clients have said it seems overwhelming and like way too much paperwork. They imagine sitting on hold for a really long time wishing they could be doing anything else, even laundry. But before all that unpleasantness, they wonder if it is even the right thing to do. Should they roll it over at all?

LET’S SIMPLIFY THE OPTIONS

Option 1- Leave it at your old employer. This is ok but you may want to check that they aren’t charging high fees. Also, your account is restricted to the limited number of investment options (~40 or so) that are offered. This could hinder the growth of your portfolio in the long term.

Option 2- Roll the account over to an IRA under a Registered Investment Advisor that works directly for you. An IRA will give you thousands of investment options (as opposed to ~40) to take full advantage of the markets. An experienced Advisor working for you can also provide you with a personal retirement analysis.

ADAMS INVESTING TAKEAWAY

For me, moving my money to someone that is working for ME and my best interest is important to me. If you make the decision to open an IRA, think of the final few steps as having an EASY BUTTON! Here is the step by step for a simple and quick transfer.

1. Speak to a Registered Investment Advisor about your goals for the account and sign account opening documents
2. Contact your current 401k administrator
3. Sit back and relax

The writer of this blog is not a registered investment advisor or broker/dealer and does not make security recommendations nor provide financial advice. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult their personal tax and/or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.

The post Stop Procrastinating Your 401K Rollover – Use The Easy Button first appeared on Jarrod Adams.

The Long Drawn Out Bear Market

It has dogged us and the media rubs our noses in it. The negative sentiment is everywhere. It’s at work, at home, at the grocery store. It has dragged us down for almost a year now and investors are tired. Exhausted even. When will it end and can we make it that far? I think this quote has never been more important, except probably in 2008 when Warren Buffet wrote it in an opinion piece in The New York Times, “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”

To further his point, if your dentist, your golf buddy and your middle school best friend are all telling you to buy the newest great market investment, be fearful. When everyone is telling you to bail on the stock market as a whole, it might be time to get ‘greedy.’ What are you hearing from people right now?

The Bear vs The Bull

The Oxford Dictionary says a bear market is “a market in which prices are falling, encouraging selling.” A bear market can be intimidating and unnerving, especially when no one knows for certain how long it will last. The fundamental truth of a bear market is that asset prices go down and the fundamental truth of a bull market is that asset prices go up.

How to Win In a Bear Market

Technically, winning in a bear market happens by investing during the bear market and holding it through the bull run, where the speed of which wealth is transferred is unlike any other period. Sounds simple, right? It is, unless you have human emotions and any miniscule amount of fear.

Of course, none of us want to lose money and all of us would like to sit on the sidelines peacefully while the bear market runs its course. Unfortunately, no one can truly predict the stock market and no one knows when to get out of a sliding market. More importantly, no one can know when to get back in so that they may take advantage of the impending wealth transfer to it’s fullest extent.

Believe in Businesses

In 2021 Warren Buffet explained in a shareholder letter, “[W]e own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers.” That being said, do you believe the companies you’re invested in will survive? For example, if you own Amazon and it is currently down 49%, do you believe it will survive and that you will continue to see Amazon Prime packages delivered to your neighbor’s porch for many years to come? Yes. Yes, we all believe Amazon will survive. So why give up on it now? Why lock in your losses? Instead, consider buying more Amazon. Let me explain:

Capturing Wealth

The 2008 recession occurred over a three-and-a-half year period, meaning it took three-and-a-half years to drop and then return to it’s previous high. The S&P dropped roughly 50% in 2008 (I’m using rough numbers for easy math). It’s high was 1500 and it fell to 750 (roughly). For the savvy investors that can see the transfer of wealth opportunity on the horizon, they invested somewhere toward the bottom, because no one can call the actual bottom. Let’s say they bought in at 800. It took about three years for the S&P to double their investment. Three years to double your money. THIS is how you capture the transfer of wealth in a bear market.

Anyone that sold out between 1500 and 750, locked in their losses. Selling on fear of the market is understandable. Fifty percent is a painful blow for anyone to endure. However, if you are feeling fearful of the bear market and you sell, then often times the fear will also drive the decision to buy back in, meaning you will have missed a significant part of the recovery and you will be the one transferring wealth to the investors that are holding/buying. In our article Retirement Is Scary we discuss timing the markets and how in the past 20 year period, seven of the best investing days happened within about two weeks of the 10 worst days. If fear drives your sell, it will be nearly impossible to buy back in so close to one of the worst days in 20 years.

ADAMS INVESTING TAKEAWAY

I didn’t plan this article around Warren Buffet quotes but since his quotes have basically written it, let’s end with another piece of wisdom from him: “I can’t predict the short-term movements of the stock market. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up.” For me it is easy to miss the most important point of this quote – the market will move higher BEFORE people start to feel comfortable again. It will move BEFORE the economy stops showing signs of recession. The market leads us into recession, and it leads us out, meaning the market data is immediate and it prices in the end of a recession before the Fed reports are printed and the media can make their announcements. It’s a lot to consider. Let us help you.

The writer of this blog is not a registered investment advisor or broker/dealer and does not make security recommendations nor provide financial advice. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult their personal tax and/or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.

The post Greed, Fear and Capturing the Transfer of Wealth in This Market first appeared on Jarrod Adams.

Small business owners have the ability to pay a salary to their minor children. The salary is an expense for the business and therefore decreases your taxable income.

PUT YOUR KIDS ON PAYROLL

Not only will your child be earning money but they’ll be learning work ethic, responsibility and get a taste of entrepreneurship. The money your child earns should be paid to an account in their name. If they earn less than $12,000 per year, they will need to file a tax return but will not need to pay federal income tax. However, they will be receiving a W2, which makes them eligible to contribute to an IRA.

If your child invests his earnings, it could make them a millionaire at retirement. In our blog What It Takes to Make Your Kids Millionaires we ran two scenarios. By investing $15,000 at age 9 and not touching it, the account could have around $1.8M at 65 years old, assuming an average annual return of 9%.

DECREASE YOUR TAXABLE INCOME

The wage paid to your minor is an expense for your small business meaning it decreases the amount of income that Uncle Sam can tax. If you have two kids that earn $12,000 per year, it will reduce your taxable income by $24,000. A win-win for your family and business.

WHAT’S THE CATCH

No catch that I have found. Obviously, the IRS has provided specific rules around this. To name a few:

1. Your kid actually has to work. Keep a log of his hours and what service he is providing. The IRS is not going to believe that your 8-year-old is a delivery driver for your company. They have provided a list of accepted tasks in the link below. Here are some ideas for child jobs and you can pay them the same rate you would pay any other employee:
2. Cleaning the office
3. Washing company cars
4. Data entry / updating customer lists
5. Transcribing
6. Updating social media accounts

• Your business must be and file as a sole proprietorship, a single-member LLC taxed as a disregarded entity, or an LLC taxed as a partnership and owned solely by you and your spouse. Check with your accountant to be sure this fits your particular situation.

ADAMS INVESTING TAKEAWAY

Finding a win-win scenario while dealing with taxes is unusual to say the least. If your company can pay your child, instead of hiring an employee, I say do it. Not only does it help your child financially down the road but they will be gaining great lessons in entrepreneurship, work ethic and responsibility. 

You work hard for your money, is it working hard for you?

Department of Labor – Youth

IRS Publication 929

The writer of this blog is not a registered investment advisor or broker/dealer and does not make security recommendations nor provide financial advice. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult their personal tax and/or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.

The post How To Make Your Kids Millionaires and Pay Less Tax first appeared on Jarrod Adams.

THIS TIME IS NOT DIFFERENT

First, he’s calm because he’s been through this before. It is, in fact, NOT different this time, though the media really wants us to believe it is. Market pull backs are an ordinary and recurring action. Some people even welcome them as opportunity. Opportunity to buy equities at ‘sale’ prices. Opportunity to move funds from a conservative asset to a less conservative asset to take advantage of the market rebound that is on the horizon. Yes, he’s calm because he has over 100-years-worth of data and all his years of personal experience that say ride-it-out.

Second, riding it out is hard because we are human and humans are naturally emotional beings. There’s a saying about people and the S&P – it is almost 100 years old (dating back to 1923) and has never failed, the only failures have been human failures. So don’t fight the emotions, just try to accept them and hold on. Maybe your grip is tight and your nails are digging in, that is ok. Whatever it takes to avoid a market timing misstep.

TIMING COMES WITH CONSEQUENCES

Timing the market is tough and missing the mark comes with consequences. The problem is that the consequences aren’t necessarily an in-your-face flashing screen that says you missed out. You may not realize just how uneventful it is to miss.

Take an investor that missed the 10 single best days in the markets between 2001 and 2021. This may seem unlikely to you. If you believe in timing the markets, you may believe that you would always be invested during those great times. However, a lot of timers pull their money out when times are tough and don’t put it back in until the markets are stable again. So, it is important to know that in that 20 year period, seven of those best days happened within about two weeks of the 10 worst days.

That is crazy important so I’m repeating it – Seven of the 10 best days in the 20 year period were within two weeks of the 10 worst days. It must be incredibly difficult to shove your money back in the markets so close to one of the worst days in 20 years. I know it would be hard for me.

The investor that missed the 10 single best days in the markets, has missed out on more than 4% of Year over Year returns……think about that. 4% every year, compounded. The average annualized return for the investor that rode-it-out was 9.4% and the investor that timed the markets and missed seven of the best days averaged 5%. That’s a big blow to a retirement account, a nearly 50% difference.

ADAMS INVESTING TAKEAWAY

The markets tend to right themselves before risks and global events pass. Remember the markets are built on companies whose only goal is to make money. Collectively, they will always find a way to be profitable, no matter what challenges are in their path. Take a look at your neighbor’s front porch, are Amazon boxes still showing up? The drive thru lines at Starbucks still seem to be full. The point is, companies are still making money – sometimes a little more or less but still making money. This leaves only one thing for us investors to do: Ride-It-Out.

You work hard for your money, is it working hard for you? Find out in less than 5 minutes

Blog written by House Writer

House Writer is not a registered investment advisor or broker/dealer and does not make security recommendations nor provide financial advice. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult their personal tax and/or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.

The post Retirement Is Scary But This Time Is Not Different first appeared on Jarrod Adams.

LIFE IS FULL OF TRADE OFFS

As you may have guessed, building a new home is a lot more pricey now than it was eight years ago, or even two years ago for that matter. We have found that we are at a cross roads with spending. We can spend all our proceeds from the last house and our new house will be built and finished the way we want. Or we can spend less on the new house (unpaved driveway, smaller horse barn) and invest a portion of the proceeds into our retirement.

TIME IS MONEY

We could invest $50,000 today or we could save $10,000 per year for 5 years (starting a year after the house is done). One option sets our retirement up for success and means we will have to slowly work to complete those unfinished parts of our build. The other option provides instant gratification with a perfect new home and we will have to save in the following years to fulfill our retirement goals. Let’s assume an average annual return of 6% for both options.

After 15 years, investing a total of $50,000 in both accounts and assuming the same average rate of return, one account shows a significantly higher total value. Because of compounding, the Full Amount Today account is almost $25,000 higher than the Annual Payments account. That is a huge difference just for investing early and allowing the compounding to do its thing. Imagine the accumulation after 20 or 30 years and the impact that starting early has!

ADAMS INVESTING TAKEAWAY

At the end of the day, this ends up being a very personal decision and preference. As with almost everything in life, if you choose something, you have to give up something. In this case, is your retirement more important to you or is it more important to finish your home accessories. No wrong decision but if it is retirement, we can help.

Blog written by House Writer
House Writer is not a registered investment advisor or broker/dealer and does not make security recommendations nor provide financial advice. Readers are advised that the material contained herein should be used solely for informational purposes, and to consult their personal tax and/or financial advisors as to its applicability to their circumstances. Investing involves risk, including the loss of principal.

The post Life is Tradeoffs and Time is Money   first appeared on Jarrod Adams.