FAQ
Financial planning comes with a lot of questions, and the answers aren’t always simple. Below, we’ve tackled some of the most common ones we hear from clients across retirement, taxes, and investing.
Table of Contents
How much money do I need to retire?
There’s no single number, it depends on your target lifestyle, expected expenses, and other income sources like Social Security or a pension.
When should I take Social Security?
You can claim as early as 62 or wait until 70, with your monthly benefit increasing roughly 6-8% for each year you delay past your full retirement age. The right timing depends on health, other income, and whether you’re still working.
What is a 401(k) and how does it work?
An employer-sponsored retirement account that lets you contribute pre-tax (traditional) or after-tax (Roth) dollars from your paycheck, often with a partial employer match. It is generally considered the first place to direct retirement savings since the match is essentially free money.
What's the difference between a Roth IRA and a Traditional IRA?
Traditional IRA contributions may be tax-deductible now, with withdrawals taxed later. Roth IRA contributions are made after-tax, but qualified withdrawals in retirement aren’t taxed. The better fit often comes down to whether you expect to be in a higher or lower tax bracket in retirement.
Click here to view contribution limits
*Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
How does compound interest work?
Your investment returns generate their own returns over time, so growth accelerates the longer money stays invested. This is why starting early tends to matter more than the amount you start with.
What is the 4% withdrawal rule?
A guideline suggesting you multiply your desired annual retirement spending by 25 to estimate a target savings number, then withdraw about 4% of your portfolio annually. It’s a helpful ballpark, not a guarantee of outcome for every market environment.
Should I pay off my mortgage before I retire?
If your mortgage rate is under roughly 4%, you’re taking the standard deduction, and your portfolio is diversified, keeping the mortgage often makes more financial sense than paying it off. On the other hand, if your rate is above 6% and the deduction isn’t giving you much of a tax break, paying it down starts to look more appealing. Using a lump sum from a tax-deferred account like a 401(k) or IRA to pay it off can trigger a larger tax bill and push you into a higher bracket. This is a case where running your specific numbers matters more than a general rule.
*There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
What is a Roth conversion?
Moving money from a traditional (pre-tax) retirement account into a Roth account, paying income tax on the converted amount now in exchange for tax-free growth and withdrawals later. Timing this in lower-income years can reduce the tax hit.
Check out our video to learn more!
*Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
How much should I keep in an emergency fund?
Your emergency fund should typically cover 3 to 6 months of expenses.
- 3 months if you’re in a household with two income sources.
- 6 months if you’re the sole provider in your household.
What is inflation, and how does it affect my savings?
The gradual rise in prices that erodes purchasing power over time, meaning cash sitting idle loses value in real terms, which is a big reason long-term savings are typically invested rather than held in cash.
How do I build or improve my credit score?
Paying bills on time, keeping credit card balances low relative to your limits, and avoiding unnecessary new credit inquiries are the core drivers most scoring models weigh.
What's a "good" net worth for my age?
People search this a lot, but it’s a poor benchmark on its own. It was one of the most-searched financial questions in the U.S. in recent Google data, yet net worth varies enormously by region, income, and life stage.¹ Tracking your own trend over time tends to be more useful than comparing to an average.
How do I start investing in stocks?
Opening a brokerage or retirement account, deciding on an asset allocation appropriate to your timeline and risk tolerance, and often starting with diversified funds rather than individual stocks.
*Asset allocation does not ensure a profit or protect against a loss.
What is passive income?
Earnings that don’t require active, ongoing work. Common examples are dividends, rental income, or interest.
*Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.
What happens to my 401(k) if I change jobs?
You generally have four options:
- Leave it with the old employer’s plan
- Roll it into your new employer’s plan
- Roll it into an IRA
- Cash it out (which usually triggers taxes and penalties if you’re under 59½)
What is a Required Minimum Distribution (RMD)?
The minimum amount you’re required to withdraw annually from certain retirement accounts starting at a specific age (currently 73 for most people), calculated based on account balance and life expectancy.
How much should I be saving each month for retirement?
Generally, we recommend saving about 20% of your income, with about 15% going toward retirement. However, your specific number depends on current savings, age, timeline, and target lifestyle.
What's the difference between a will and a trust?
A will directs how assets are distributed after death and typically goes through probate. A trust can transfer assets outside of probate, potentially offering more privacy and control over timing and conditions.
Why does my beneficiary designation matter more than my will?
Beneficiary designations on retirement accounts and life insurance override what’s written in a will. An outdated designation (an ex-spouse, for example) can create real problems regardless of what your will says. Marriage, divorce, a death in the family, or the birth of a child are all life events that should prompt you to review your designations.
How do I find a financial advisor?
The most important step is reviewing the advisors credentials. For example, are they a CFP® and do they act as a fiduciary?
What is an HSA, and can I use it for retirement?
A Health Savings Account offers triple tax advantages: deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. After 65, funds can also be withdrawn for any purpose (taxed as ordinary income), which is why some people treat it as a supplemental retirement account.
Should I invest or pay off debt first?
Generally: capture any employer 401(k) match first, then prioritize high-interest debt (credit cards especially), then balance additional investing against lower-interest debt based on your rate of return expectations.
What is a 529 plan?
A tax-advantaged account for education savings. Contributions grow tax-deferred and withdrawals for qualified education expenses aren’t federally taxed. Recent legislation has also given these accounts further flexibility.
Check out our video to learn more!
*Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
Are Social Security benefits taxable?
Yes, potentially, up to 85% of benefits can be subject to federal income tax depending on your total “combined income” from other sources. There are also several states that tax benefits.
What is estate planning, and do I actually need it?
It’s the process of organizing how your assets, healthcare decisions, and affairs are handled if you become incapacitated or pass away. This includes a will, beneficiary designations, powers of attorney, and sometimes a trust. It’s relevant regardless of net worth.
Other Resources
Still Have Questions?
Every situation is different, and a quick conversation can clear up a lot. Schedule a complimentary consultation with our team, and let’s talk through what actually applies to you.
1. https://www.empower.com/the-currency/money/most-asked-money-questions
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.