Dear Penny: My Dad Says to Invest My Roth IRA in Silver, Marijuana

Dear Penny,

I’m a 24-year-old single male and recent college graduate. I have a job but no 401(k) match, so my dad suggested I start a Roth IRA. I don’t have any idea how to invest it.

My dad says that since I’m young, I need to take risks. He’s suggested some marijuana stocks and silver stocks that he’s made money on. But this seems like it might be too risky to me. My dad doesn’t work in investing, and I don’t think he knows a whole lot about it. I’m not making enough to hire a financial advisor. Is my dad giving me bad advice?

-New Investor

Dear Newby,

Your dad loves you and wants what’s best for you. But that doesn’t mean he knows anything about investing.

Your dad’s suggestion that you open a Roth IRA was a good one. By forgoing a tax break now, you’ll get tax-free income when you retire. But it sounds like your dad isn’t clear on the kind of investment risks beginning investors should take.

So you start out by investing mostly in stocks, which tend to be high-risk/high-reward, and then gradually shift more money into bonds, which are safer but offer little growth. When you have a few decades to go until retirement, your money has time to recover from a stock market crash.

But when you invest in just a couple of stocks, your risk of losing everything is substantial. Your investments may never recover if things go south. There may not be any money left to recover. You never want your life’s savings tied to the fate of a single company or two.

Both the silver and marijuana industries are especially volatile. The price of silver fluctuates wildly for a host of reasons. One is that more than half of silver is extracted as a byproduct while mining for other metals, like gold, copper or zinc. It’s basic supply and demand stuff: The supply of silver doesn’t move up and down with changes in demand, so the prices are turbulent. With marijuana, you’re doing a lot of political calculus about when and where marijuana will become legal, plus a lot of the companies are small with no proven track record.

That doesn’t mean you should never invest in silver or marijuana. But you should only do so if you already have a diversified portfolio and you’re starting with a relatively small amount. And never use your retirement funds for these kinds of speculative investments.

The best way to start investing is to spread your money across the stock market. You don’t need a financial adviser here. You can do this with a total stock market index fund, which invests you across the entire stock market, or an S&P 500 index fund, which invests you in 500 of the largest companies in the U.S. You could also take the guesswork out of it completely and use a robo-adviser. Your brokerage firm will use an algorithm to invest your money according to your age, goals and how much risk you’re willing to take.

If you opt to choose your own investments once you get your feet wet, it’s essential that you only do so after researching the investment on your own. Don’t make decisions based solely on what someone else says, whether that person is your dad or an advice columnist or a stranger on Reddit.

If, after doing your own research, you decide you wanted to invest in silver or marijuana, a safer way to do so would be to invest in a silver or marijuana exchange-traded fund, or ETF. Your money would be invested in a bunch of businesses throughout the industry instead of concentrated in a single company. But I’d only suggest this after you’ve gotten some investing experience — and only then if you’re limiting your investment to 5% to 10% of your portfolio.

You don’t say how old your father is or whether you know anything about his finances. To be honest, I’m more concerned about your dad’s retirement planning than I am about yours if he gravitates toward high-risk investments.

Since you’re already talking about your retirement, this could be a good opportunity to start the conversation about how prepared your dad is for his retirement. I’m not asking you to play financial adviser here. But even just asking your dad when he wants to retire and whether he feels ready is a good conversation to have.

As for your dad’s stock picks, I think you’re probably fine saying, “Thanks, I’ll check it out.” You’re an adult, and you don’t need to provide your dad with a copy of your brokerage statement.

Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected]

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Ergodicity: The Coolest Idea You’ve Never Heard Of

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Surely that’s a typo…ergodicity!? No, it’s right! Ergodicity is a powerful concept in economic theory, investing, and personal finance.

Even if the name seems wild to you, the idea is simple—stick with me while I explain it. And then we’ll apply ergodicity to retirement planning and investing ideas.

By the end of this article, you’re going to be seeing ergodic systems and non-ergodic systems all over your life!

Ergodic, Non-Ergodic, and Russian Roulette

Ergodicity compares the time average of a system against the expected value of that system. Let’s explain those two terms: time average and expected value.

The time average asks, “If we did something a million, billion, trillion times…what would we expect the results to look like?” It needs to be a sufficiently long random sample.

The expected value asks, “By simply averaging probabilities, where would we expect the result to be?”

At first blush, you might think, “Those two are the same thing…right?” Right! Or, at least you’d be right if the system in question is ergodic.

I flip a coin a billion times, and I end up with a time average of 50/50 heads and tails. Alternatively, I could just use their known probabilities and surmise the expected value of 50/50.

In this case, the time average and the expected value are the same. Therefore, the system—coin flipping—is ergodic.

But let’s contrast coin flips against Russian Roulette. The expected value of Russian Roulette is optimistic. ~83% success and ~17% failure. But what happens if one “plays” a million times? Ahh! I think you’d agree that the time average of Russian Roulette is 100% failure.

When one fails in Russian Roulette, it is a devastating failure. To only look at the expected value of the system is too simple. The expected value is far different than the time average. Thus, Russian Roulette is non-ergodic.

Ergodicity –> Over and Over, Big & Small

Ergodicity rears its head in two circumstances. First, ergodicity matters when we do things over and over and over. And second, ergodicity matters when certain outcomes are meaningful while other outcomes are insignificant.

To further explain ergodicity, imagine this bet:

I have a 100-sided die.

I’ll roll the die and you pick a number. If it lands on any other number than your number, then you win $1000.

But if it lands on your number, then Mike Tyson punches you in the face and takes your money.

What a deal! You call 99 of your friends and you all come to take this bet. Sure enough, one of your friends loses. But the rest of you win a combined $99,000 and agree to pay for his medical bills (which may or may not be covered by the $99K…which is another crazy blog post waiting to happen).

The “ensemble average” is that you won! One individual loss doesn’t change that.

But would that result be the same if you had played 100 times by yourself? No! In that scenario, there’s a 63% chance that you’d eventually lose the roll, lose your money, and get punched in the face.

The expected value (you and all your friends) is different than the time average (you doing it 100x). This is not an ergodic process.

Revisiting Ergodicity & Coin Flips

We concluded earlier that coin flips are ergodic. The expected value of a single coin flip equals the time average results of many coin flips.

But let’s change the rules a bit. Imagine I promised you a 40% positive return on heads but a 30% loss on tails. You start with $100,000. Would you take this bet?

Again, let’s call up 100 of your friends. You each take the bet.

We can predict that half of you will end up with $140K (40% return) and half end up with $70K (a 30% loss). On average, you each have $105K. As a group, you’ll end up 5% higher than you started.

Sure enough, we can run this simulation a million times and that’s exactly what we see. Both the mean and median results of these simulation show a 5% profit. Taking the bet was smart.

But what if you took the bet 100 times? Same result?

Same for You?

To start, let’s look at two common snippets in the sequence of returns: one win followed by one loss, and one loss followed by one win.

Win then loss

Loss then win

(You mathematicians will see the commutative property at play. The order of this multiplication didn’t matter.)

This result completely shifts our mindset.

When two people share a win/loss, then end up with $140K+$70K = $210K, or $105K each. They gain $5K. But when one person sequentially suffers a win/loss, she ends up with $98K, or a $2K loss.

What happens if you take this bet 100 times in a row? On average, you are going to lose money. Let’s look at a 50/50 heads/tails split.

Group 50/50:

That’s a 5% profit.

You 50/50:

That’s a 64% loss

But you might “spike” a certain run where you get more heads than tails. What happens if the group gets 60 heads and 40 tails? What happens if you get 60 heads and 40 tails?

Group 60/40:

You 60/40:

That’s…a big profit. $37.3 million.

I simulated the “you get 100 flips” case 100,000 times. As expected, the median result is a 64% loss. But the best result of the 100K simulations turns your $100K bet into $950 million dollars (68 heads, 32 tails).

This bet is non-ergodic. The expected value (100 friends scenario) is completely different than the time average (you 100x bets scenario).

But it’s also interesting that the distribution in the expected value case is tight (low risk, low reward) while the distribution in the time average case is extremely wide (high risk, potentially high reward).

EV is a profit, while time average is a loss. EV is low variance, while time average is high variance.

In case you can’t tell, ergodicity economics and subsequent economic theory is a serious field. There are big conversations taking place and serious money to be made (or lost).

But let’s focus a little closer to home: ergodicity and retirement.

Ergodicity and Retirement

In retirement planning, probability of success is often used as a figure of merit. I’ve used it here on the blog.

For example, the famous Trinity Study and 4% Rule cite a “95% chance of success,” where success is equivalent to “not running out of money before you die.”

Die with money? Success! Die without money? Failure! This is an expected value metric—for 95% of all people, the 4% rule would have worked.

But a few problems in this thinking immediately arise and ergodicity is to blame.

Problem 1: Equal and Opposite?

The 5% of retirement fail cases are painful. Very painful. I would argue that the pain of failure in retirement is greater than the joy of success.

This is reminiscent of loss aversion, or the “tendency to prefer avoiding losses to acquiring equivalent gains.” The keyword in loss aversion is “equivalent.” People would rather avoid a $100 parking ticket than win a $100 lotto ticket. Those are equivalent. And yes, loss aversion is irrational.

But is failing in retirement equivalent-and-opposite to succeeding in retirement? I’d argue no. Failing in retirement is akin to a Russian Roulette loss. Devastating! And succeeding in retirement is a Russian Roulette win. It’s “expected.”

Problem 2: Expected Value & Risk Sharing

Let’s assume we all follow the 4% rule. And true to historical form, let’s assume that 95% of us have successful retirements, but 5% of us “fail” and run out of money.

In the previous examples—100 friends and Mike Tyson, or 100 friends and the 40% win/30% loss coin flip—we assumed that the group would share the risk and share the reward.

This guaranteed that we’d see profits, but eliminated our chance to win $950 million. This guaranteed that even if we did get face-punched by Mike Tyson, our winning friends would still help us out.

But in retirement planning, people do not share risk. The 95% winners have no obligation to bail out the 5% losers. This changes the game. This isn’t traditional ergodicity.

Instead, we’re all in the game by ourselves (like the time average participant), but only have one shot to get it right (lest our retirement plan fail). From the ergodicity point of view, it’s a conundrum. It’s like playing Russian Roulette with a 20-chamber gun (5% failure = 1 chance in 20).

How do potential retirees react to this change in the rules?

For starters, many real retirement plans are couched with so much conservatism that the retiree ends up with more money when they die than when they retired. Put another way—their investment gains outpace their ability to spend.

And we know that money is time. Therefore, we can conclude that many people work for years more than they need to. They’re cursing at spreadsheets when they could be sipping mojitos. Pardon my 2020 vernacular, but this is an abundance of caution.

Is there an ergodic solution to this over-cautious planning?

Does Ergodicity Have a Solution?

What did we learn from Mike Tyson ergodicity example? What did we learn from our coin flipping?

If we share risk, we reduce our potential upside but also eliminate downside.

Imagine that 100 retirees pool a portion of their money together. They all know that 95% of them won’t need to dip into that pool. They also know that their money in the pool is probably going to have worse returns than it would outside of that pool.

However! These 100 retirees also realize that the pool will save 5 of them from failure. And thus, the pool guarantees that their retirement will be successful. Instead of 100% of them worrying about a 5% downside, now none of them need to be concerned.

The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.

William Bernstein

Some of you will know that this “pool” concept already exists. It’s called an annuity.

Annuities?! Jesse, You Son of a B…

Wait, wait, don’t shoot me! Besides, you only have one bullet in those 20 chambers (thank ergodicity)

Real quick: an annuity is a financial product where a customer pays a lump sum upfront in return for a series of payments over the rest of their life. Insurance companies often sell annuities.

Annuities—on average—are losing propositions. Just like my pool above, the average annuitant will suffer via opportunity costs. Their money—on average—is better invested elsewhere.

Insurance protects wealth. It doesn’t build wealth.

Ben Carlson

Never let someone convince you that an insurance product is going to build your wealth. Why? There are only two parties involved—you and the insurance company. If you’re building wealth, then the insurance company is…losing money? No way.

Insurance products are equivalent to average mutual funs with high fees. The high fees drain you like a vampire bat. They make money, and you lose via opportunity costs.

But one thing that annuities get right is that they hedge against downside risk in your retirement planning. The insurance company—i.e. my pool in the example above—collects a loss from most customers in order to provide a vital win to few customers.

This is just like real insurance. Most people pay more in insurance premiums—for their house, their car, their medical life—then they ever see in payouts. But for a vital few, insurance saves them from complete disaster.

Of course, detractors will rightly point out that annuities aren’t always guaranteed. If the insurance company goes belly-up, your state guarantor might only cover a portion of what you’re owed. Yes—that means your risk mitigation technique has risk itself. Riskception.

Annuities aren’t perfect. I don’t plan on buying one. But if the ergodicity of retirement planning has you fretting small chances of failure, annuities are one way to hedge that downside.

Is Robin Hood Ergodic?

Jesse is a boring index fund investor. It’s true.

But not Robin. She day-trades on Robin Hood, often experimenting with exotic trades with high leverage.

We can examine Jesse and Robin using ergodicity.

Jesse is playing the long game. In this simple hypothetical, his yearly returns are +30%, +10%, then -15%. The same three-year cycle keeps repeating. One might look at those three values and think, “Ah. About 8.3% per year, on average.”

Robin thinks daily. She wants money now. In this hypothetical, her daily returns are +60%, +15%, and -50%. The same three-day cycle keeps repeating. Again, one might look at those three values and think, “Ah. About 8.3% per day, on average.”

You might see a problem. We’ve used the arithmetic mean here. The arithmetic mean is useful in finding the expected value, in ergodicity terms. If Person A gains 60%, Person B gains 15%, and Person C loses 50%, their average change is an 8% gain.

But sequencing investment returns—e.g. the ergodicity time average—requires that we use a logarithmic average. So let’s do that below:

[note: exp = the exponential function, ln = the natural log]

Uh oh. Robin’s log average return is negative. And sure enough, if Robin executed this particular day-trading strategy, she would turn her $10,000 into $500 in less than four months. Meanwhile, Jesse is fine with his 6.7% annual return (trust me…he is).

The simple lesson is one that new investors love to scream from the rooftops (and that’s a good thing). Namely, a given portfolio loss requires a larger equivalent gain to return back to even. The arithmetic mean does not capture this fact, while the log mean does.

The larger the loss, the more significant the returning gain needs to be. That’s another ergodicity concept.

E.g. a 1% loss is offset by a 1.01% gain—they’re essentially the same. But a 50% loss—like the one Robin suffers every third day—requires a 100% gain to offset it

Just like we said earlier in the post—big risks matter most, and those large downsides are when we’re likely to see non-ergodic systems.

Everyday Ergodicity

I would argue that a smooth, ergodic personal life is also optimal. Imagine ranking your days on a scale of 1-10. Would you rather have half 10’s and half 4s? Or all dependable 7’s? Or two-thirds 10’s and one-third 1’s?

To each their own. I’d prefer the 7’s. I don’t want half my days to be “bad,” even if the flip side of that coin is that half my days are “perfect.”

Don’t make ‘perfect’ the enemy of good enough.

-Someone at Jesse’ work

Maybe it’s boring. Maybe it’s the same muscle that pushes me towards indexing and away from Gamestop. To each their own. But I’ll take the 7’s.

Ergodicity in Grad School

In grad school, I studied fluid dynamics. See—this is me! Specifically, I worked on reaction-diffusion-advection problems in the University of Rochester Mixing Lab.

Fluid mixing is a terrific example of ergodicity. Take a few seconds to watch the video below. It’s a pretty way to view equilibrium statistic physics. Ergodicity applies to many different dynamical systems, stochastic processes, thermodynamic equilibrium problems, etc. It’s a mechanical engineer’s dream.

Ergodic mixing

If we mix sufficiently, we see that small sub-sections of the fluid are representative of the fluid as a whole. The time average of many mixes is equal to our expected value of a uniform mix. This is ergodicity. This system is ergodic.

If this was butter and sugar—soon to be cookies—we could take any teaspoon of the mixture and draw reasonable assumptions about the mixture as a whole. Mmmmm!

But imagine if we accidentally introduce a dog hair into the mix (not that that’s ever happened in my kitchen). Suddenly, the mix is no longer ergodic.

Why? The expected value of any given cookie is that it will not contain the dog hair. But of course, eat enough of the cookies and you’ll eventually find the hair.

Or put another way, a single teaspoon of the mixture—which will contain either the entire dog hair or no dog hair at all—is no longer representative of the total mixture.

Good Article. Ergo…

Ergo it’s time for the summary.

Ergodicity is a fun concept. Or at least fun for nerds like me. It’s a terrific way to consider risk. It helps us in behavioral economics, personal finance, and real retirement planning.

What do you think? Any cool ergodic or non-ergodic systems in your life?

If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

This article—just like every other—is supported by readers like you.

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Indexed Universal Life (IUL) vs. 401(k)

Indexed Universal Life (IUL) vs. 401(k) – SmartAsset

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When creating your personal retirement plan, there are a variety of tools you can use to fund your long-term savings goals. An employer-sponsored 401(k) is one of them while indexed universal life insurance (IUL) is another. A 401(k) allows you to invest money on a tax-deferred basis while also enjoying a tax deduction for contributions. Indexed universal life insurance allows you to secure a death benefit for your loved ones while accumulating cash value that you can borrow against. Understanding the differences and similarities between IUL vs. 401(k) matters for effective retirement planning. Working with a financial advisor can also make a substantial difference in the amount of money you’ll have when you retire.

What Is Indexed Universal Life Insurance?

Indexed universal life insurance is a type of permanent life insurance coverage. When you buy a policy, you’re covered for the rest of your natural life as long as your premiums are paid. When you pass away, the policy pays out a death benefit to your beneficiaries.

During your lifetime, an IUL insurance policy can accumulate cash value. Part of the premiums you pay are allocated to a cash-value account. That account tracks the performance of an underlying stock index, such as the Nasdaq or S&P 500 Composite Price Index. As the index moves up or down, the insurance company credits the cash value portion of your policy each year with interest.

IUL is different from fixed universal life insurance or variable universal life insurance. With fixed universal life insurance your rate of return is guaranteed, making it the least risky of the three. With variable universal life insurance, your cash value account is invested in mutual funds and other securities so you’re exposed to more risk. An indexed universal life insurance policy fits in the middle of the risk spectrum.

Cash value that accumulates inside an IUL insurance policy grows tax-deferred. You can borrow against this cash value if necessary, though any loans left unpaid at the time you pass away are deducted from the death benefit.

What Is a 401(k)?

A 401(k) is a type of qualified retirement plan that allows you to set money aside for retirement on a tax-advantaged basis. Contributions are deducted from your paychecks via a salary deferral. Your employer can also offer a matching contribution. The IRS limits the amount you can and your employer can contribute each year.

With a traditional 401(k), contributions are made using pre-tax dollars. Any money you contribute is automatically deducted from your taxable income from the year. When you begin taking money out of your 401(k) in retirement, you’ll pay ordinary income tax on withdrawals. Any withdrawals made before age 59.5 may be subject to a 10% early withdrawal penalty as well as income tax.

Traditional 401(k) plans allow you to invest in a variety of securities, including mutual funds and exchange-traded funds. Target-date funds are also a popular option. These funds automatically adjust your asset allocation based on your target retirement date.

There’s no death benefit component with a 401(k). This is money you save during your working years that you can tap into in retirement. Unless you’re still working with the same employer, you’re required to begin taking minimum distributions from a 401(k) beginning at age 72. Failing to do so can trigger a tax penalty equivalent to 50% of the amount you were required to withdraw.

IUL vs. 401(k): Which Is Better for Retirement Savings?

Indexed universal life insurance and 401(k) plans can both be used as investment tools for retirement. But there are some important differences to note. With IUL, returns are tied to the performance of an underlying index. If the index performs well, then your policy earns a higher interest rate. If the index underperforms, on the other hand, your returns may shrink. Your insurance company can also cap the rate of return credited to your account each year, regardless of how well the underlying index does. For instance, you may have a cap rate of 3% or 4% annually.

In a 401(k) plan, you have the option to invest in index mutual funds or ETFs but you’re not locked in to just those investments. You can also choose actively managed funds, target-date funds and other securities, based on your time frame for investing, goals and risk tolerance. Your rate of return is still tied to how well those investments perform but there’s no cap. So, if you invest in an index fund that goes up by 20%, you’ll see that reflected in your 401(k) balance.

A 401(k) also affords the advantage of an employer matching contribution. This is essentially free money you can use to grow retirement wealth. With an indexed universal life insurance policy, you’re responsible for paying all of the premium costs.

Another big difference between the two centers on tax treatment and withdrawals. With an indexed universal life insurance policy, you can borrow against the cash value at any time. You’ll pay no capital gains tax on loans and no penalties unless you surrender the policy completely or fail to repay what you borrow. Death benefits pass to your beneficiaries tax-free.

With a 401(k), you generally can’t tap into this money penalty-free before the age of 59.5, even in the case of a hardship withdrawal. You may be able to avoid a tax penalty if you’re withdrawing money for qualified medical expenses but you’d still owe income tax on the distribution. You could take out a 401(k) loan instead but that also has tax implications. If you separate from your employer with an outstanding loan balance and fail to repay the loan in full, the entire amount can be treated as a taxable distribution.

Qualified distributions in retirement are taxable at your regular income tax rate. And if you pass away with a balance in your 401(k), the beneficiary who inherits the money will have to pay taxes on it. Talking with a tax professional or your financial advisor can help you come up with a plan for managing tax liability efficiently both prior to retirement and after.

The Bottom Line

Indexed universal life insurance and a 401(k) plan can both help you build wealth for retirement but they aren’t necessarily interchangeable. If you have a 401(k) at work, this may be the first place to start when creating a retirement savings plan. You can then decide if IUL or another type of life insurance is needed to supplement your workplace savings as well as the money you’re investing an IRA or brokerage account.

Tips for Investing

  • When using a 401(k) to invest for retirement, pay close attention to fees. This includes the fees charged by the plan itself as well as the fees associated with individual investments. If a mutual fund has a higher expense ratio, for instance, consider whether that cost is justified by a consistently higher rate of return.
  • Consider talking with a financial advisor about how to maximize your 401(k) plan at work and whether indexed universal life insurance is something you need. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool makes it easy to get personalized recommendations for professionals in your local area in just minutes. If you’re ready, get started now.

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Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.

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How to Retire in Turkey: Costs, Visas and More

How to Retire in Turkey: Costs, Visas and More – SmartAsset

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Turkey is filled to the brim with beautiful architecture, art and a melange of cultures that reaches back thousands of years. It’s home to artifacts from communities like the Hittites, Ancient Greeks, early Christians and Mongols, which fill this nation of some 82 million, with a rich sense of history. Lying as it does at a crossroads of Europe and Asia, visitors can see a unique blend of Western and Eastern influences. Its Mediterranean and Black Sea beaches are renowned for their beauty. Istanbul’s Grand Bazaar extends across 58 covered streets hosting some 1,200 shops. If you’re considering retiring in Turkey, here’s an overview of some basic information you’ll need. A financial advisor can offer valuable guidance as you consider retiring abroad.

Cost of Living and Housing

It’s much less expensive to live in Turkey than it is to live in the U.S. Without accounting for rent, Turkey’s cost of living is 53.56% lower than in the U.S. on average, according to Numbeo, a cost-of-living database.

U.S. rent prices are 556.13% higher when stacked against those in Turkey, on average. To rent a one-bedroom apartment in a city center will run you around $215.26 in Turkey, whereas a comparable setup in the U.S. would run about $1,340.16. If you wanted to pursue purchasing an apartment in Turkey, you would find that the price per square foot in a city center is averaged out to $83.07. In comparison, the same square footage in a similar city location in the U.S. would cost about $328.96.

To further illustrate the contrast, we can compare Istanbul, Turkey’s most populated city, to the U.S.’s New York City. To maintain the same standard of life, you would need around $8,203.10 in New York, which contrasts starkly to the approximately $1,960.45 necessary in Istanbul, assuming you rent in both.

So, if you’re looking for a country to retire in with both affordable renting prices and lower property costs to make the most out of your savings, Turkey may be a solid option.

Retire in Turkey – Visas and Residence Permit

Turkey doesn’t have a visa specifically for retirement, so you have to apply for a residence permit instead. This requirement applies to anyone who intends to remain in the country more than three months. You’ll first have to apply for a short-term residence permit, and you must do so within a month of your arrival in Turkey. There is an online application you fill out at the Turkish Ministry of Interior’s website. Once you finish, it will prompt you to make an appointment with the nearest DGMM office to continue the process and pay the fee your visa requires.

A short-term residence permit is issued on a two-year basis. After you’ve lived in Turkey uninterrupted for eight years under your short-term visa, you can apply for a long-term residence permit. These extend indefinitely.

No matter what residence permit you are applying for, you will likely need to show proof that you possess adequate assets. This can shift whether or not you have dependents, but a single person is generally required to have the equivalent to a month’s worth of Turkish minimum wage. As of early 2021, that would be around $400.

Retire in Turkey – Healthcare

The World Health Organization ranking of national healthcare systems puts Turkey’s at 70th out of 191. The central government body responsible for healthcare and related policies is the Ministry of Health (MoH). There is also a private sector and university-based care; however, the MoH is the main body responsible for providing healthcare. You can expect the quality of healthcare in Turkey to vary between regions. Although it’s cheaper than some of its European neighbors, access is limited in more rural areas. You’re more likely to have high-quality care in major urban locations like Istanbul – as well as the ability to communicate with your healthcare providers in English. This increase in quality is why most expats choose to go to private medical facilities over public ones.

All residents under 65 must have either public or private health insurance. Expats who have resided in Turkey for over a year under their residence permit can apply to have public health insurance through the state-run Sosyal Güvenlik Kurumu (SGK). Expats usually choose to supplement this with private insurance (or just choose private) to cover additional fees at private facilities.

As Turkey has grown as a country and political entity, it has experienced a great deal of reform around its healthcare system. It likely will continue to experience further changes in the future.

Retire in Turkey – Taxes

Like many countries, residents and non-residents are subject to different taxes in Turkey. Residents pay taxes on their worldwide income, whereas non-residents only have to pay taxes on Turkish-sourced income. The country uses a progressive tax scale, ranging from 15% to 35%, depending on your income bracket.

Turkey does possess a tax treaty with the U.S., which can provide some relief. You will only have to pay into one country’s Social Security program as a result, which in Turkey is a 14% flat tax for employees. Otherwise, there are also tax exemptions that may allow you to pay less on your U.S. income taxes. One example is the foreign earned income exclusion, which lets you exclude the first (approximately) $100,000 for foreign earned income if you can prove your Turkish residency.

Retire in Turkey – Safety

Each expat’s experience is unique. Some may travel through Turkey and find they encounter little to no issues on a security level. That’s not to say you shouldn’t be cautious. The U.S. Department of State’s travel advisory warns travelers either visiting or moving through Turkey to be wary of both terrorism and arbitrary detentions. The advisory heavily suggests that you avoid the Sirnak and Hakkari provinces, which are in the southeastern part of the country, as well as any area within six miles of the Syrian border to avoid terrorist activity. The State Department’s most recent report on human rights practices in Turkey bears a close reading, especially sections 1 and 6.

Although you should speak with locals and enjoy the culture, you should also be wary of your surroundings and keep an eye on political developments. It is also advised that you don’t engage with political topics online either since that can still be a red flag.

The Takeaway

Turkey is still in the process of significant political change, making settling down difficult for the average retiree. That, along with terrorism concerns, may encourage you to look at other countries instead. However, Turkey has a strong sense of identity with a warm populace who wants to share their cultural. That sense of belonging, along with the country’s beautiful features and its low living costs, may make the challenges worth it to you.

Tips on Retiring

  • Finding the right financial advisor who can help address your needs doesn’t have to be hard. SmartAsset’s free tool matches you up with local financial advisors in as little as five minutes. If you’re ready to be meet with advisors in your area that will help you achieve your financial goals, get started now.
  • Planning your retirement comes with its challenges, especially if you intend to move abroad. While Turkey may have low living costs, there still may be other financial burdens you have to address. To get an idea of what to expect, stop by our retirement calculator.

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Ashley Chorpenning Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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How to Retire in Barbados: Costs, Visas and More

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An island in the West Indies, Barbados is a jewel of the Caribbean. Its turquoise waters and golden beaches are a perfect match to many people’s idealized days in the sun that they hope is waiting at the end of their working life. While this commonwealth country, where English is the official language, does have good reason to boast, you may wonder whether it’s right for you to retire in Barbados. Before contacting your financial planner to see if your finances are in order for the move, here are a few matters to consider first.

Cost of Living and Housing

Barbados’s cost of living tends to run a little higher than the U.S.’s on average, according to Numbeo, a cost-of-living database. At 12.24% above the U.S.’s average, without taking into account rent, the difference is not as significant as some other percentages found between the two.

For example, although Barbados has a higher cost of living, it has a much lower rent average. In comparison to the U.S., Barbados’s rent is generally 48.53% lower. You’ll find that renting is the cheaper way of living in Barbados, with a single-bedroom apartment in a city center at about $654.55. However, purchasing is a different story. At about $3,087.21 per square meter to buy an apartment in the same setting, it’s in the same price range as the U.S. There, it’s around $3,533.12 per square meter.

So, if you’re looking to stretch your retirement funds further, it makes more sense to pursue renting Barbados rather than purchasing a property.

Retire in Barbados – Visas and Residence Permit

For those who want to retire in Barbados, the process is relatively simple. Individuals over 60 with sufficient funds to support themselves can apply for immigrant status. After living in the country for five years, those people can then apply for permanent residence. You’ll have application and approval fees, in this case, $300 and $1,200, respectively.

Another option open to retirees is a special entry permit (SEP). This permit is offered to retired property owners and allows them to visit the island and leave as they please. The main requirements include owning Barbados real estate valued at $150,000 or higher and health insurance coverage. The latter’s value depends on the person’s age; below 50 has to have $350,000, and over 50 has to have $500,000 worth of coverage.

There are flat fees to cover for the SEP. It’s $5,000 for those below 50 and above 60 with $3,500 for those in between 50 and 60. Once you hit 60, this permit is indefinite, but you must renew it until then.

Retire in Barbados – Healthcare

Barbados enjoys a high standard of living and, thus, its people’s health is overall quite good. Its healthcare system is even viewed as among the best in the Caribbean. However, if you’re not a Bajan (as citizens of Barbados are sometimes called), you are not included under the island’s universal healthcare system. Therefore, if you’re an expat looking to retire in Barbados, you should ensure that you have private health insurance. Otherwise, numerous travelers and potential residents seek out the U.S. for treatment instead.

This outsourcing is also partially due to the difficulty in accessing professional care, such as rehab services. Otherwise, you’ll generally find four types of institutions: hospitals, both private and public; polyclinics; alternative healthcare clinics; and somewhat specialized hospitals, such as the five geriatric hospitals on the island.

Retire in Barbados – Taxes

After you spend 182 days of one year in Barbados, you are considered a resident. So, it’s important to know the tax distinctions between resident and non-resident status. Residents must pay taxes on their worldwide income, or the income they earn both inside and outside Barbados. In contrast, non-residents only pay taxes on income earned in Barbados.

For residents, they must file their income taxes on a minimum threshold of BBD50,000, or approximately $24,786. Incomes up to and including BBD50,000 incurs a 12.5% tax rate, while going over that amount leads to 28.5%. Residents are ensured a basic personal allowance of BBD25,000 ($12,500) and BBD40,000 ($20,000) for pensioners older than 60.

Non-residents receive the same tax rates. However, it’s important to note that even if you live outside the country, you must file taxes with the U.S. as an expat as well. Barbados and the U.S. have a tax treaty that can offer benefits and help ease the burden. There are also opportunities for U.S. expats through the foreign earned income exclusion and foreign tax credits to avoid double taxation on their Barbados earned income.

Retire in Barbados – Safety

While U.S. expats are not specific targets of crime in Barbados, they are still susceptible to crimes of opportunity and violence. Theft, such as burglary and gun violence, among other crimes, exist in Barbados. So, it is essential to remain vigilant, to avoid walking alone, particularly at night, and to know who you’re with at all times.

In particular, the U.S. Department of State advises against traveling through specific areas on the island to avoid these dangerous interactions. Areas to avoid include Crab Hill, Nelson and Wellington Streets and general nighttime party cruises.

Be cautious about which activities you enjoy, such as water sports or tourist events. This advisement comes more from a practical, safety concern than a pointed targeting of tourists, though. So, keep your wits about you.

The Takeaway

Barbados is the island of dreams for some retirees. Thanks to the prominent U.S. community as well as an English-speaking citizenry, there’s less of a culture shock to shake you up. There is also the gorgeous weather, a location out of most hurricanes’ paths and the relative ease in becoming a resident. However, before you start to plan out your future on this island, it’s best to speak with a trusted financial advisor. Such a person can lay out the commonwealth’s tax and healthcare systems and help you determine whether the high purchasing price of property is in line with your long-term goals.

Tips for Achieving Your Retirement Goals

  • Finding the most suitable financial advisor for your needs doesn’t have to be complicated. SmartAsset’s free tool matches you with local financial advisors in as little as five minutes. If you’re ready to be matched with your financial advisor, who will help you achieve your financial goals, get started now.
  • Barbados may not have a high cost of living compared to the U.S., but the difference could still affect your finances. To see  if your finances will support this, try our retirement calculator. Just put in a few details about where you want to retire, when you want to retire and the value of your current savings.

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Ashley Chorpenning Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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Alternatives to 401(k)s: Other Routes to Retirement

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Today, guest author Jeff Cooper of Have Your Dollars Make Sense offers interesting views on alternatives to 401(k) accounts. I maximize my 401(k) with my investment strategy, but I enjoyed understanding Jeff’s ideas.

Thanks Jeff!

-Jesse from The Best Interest

For most of us, a 401(k) is our main approach to saving for retirement. The concept is easy—stash away money now and use it later. But there are alternatives to 401(k) accounts…and for good reason!

Many people take pride in saying “I max out my 401(k)”, with the assumption they are taking the best possible route to retirement. But are they?

The two main objectives of investing are diversifying assets to lower risk while still maximizing returns.  401(k) accounts don’t check both of these boxes all of the time. They are a great tool for retirement planning but shouldn’t be your only tool.

So let’s look at alternatives to 401(k) accounts that will make your money work best for you and your retirement goals.   

401(k): Why You Should Contribute  

I’m not suggesting you completely ignore your 401(k). There are good reasons why you should be contributing. To name a few…

Company Matching

Many companies that offer 401(k) accounts will also match a percentage of an individual’s contribution. In the eyes of the employee, this is literally free money. There really is no reason not to take advantage of this benefit. Avoid any alternatives to 401(k)s that neglect this free money.

You should, however, be aware of how much your employer will match. Many employers cap the matching around 4-6% of your salary. After that, only your dollars will count towards your nest egg.

I also recommend looking into your company’s vesting schedule to understand when you’ll get partial- and full-ownership of the company matches.

Some companies will “clawback” their matching funds if you leave before a predetermined amount of time. You should, however, still be entitled to your full individual contributions. You’ll have to determine if you plan on being at your company long enough to take full advantage of their matching.     

Maximize Pre-Tax Dollars

Another money-saving advantage of a 401(k) is that your money is invested before taxes are taken out. This means you’ll get more bang for your buck, and here’s why:

If you wait to invest your post-tax dollars, there’s less money available to invest. For example, let’s say Jesse loses $50 per month due to taxes. It might not seem like a big deal. Just $50 a month!

But that $50 deficit will add up over the years. $50/month * 30 years = $18,000!

On top of that, the power of compounding gains on those missed dollars could be a difference of tens of thousands of dollars by the time retirement rolls around. The example below shows how Jesse might miss out on $40,000+ in compounding returns.

Chart, line chart Description automatically generated

Lower Taxable Income

Contributing pre-tax dollars to your 401(k) will also help to lower your taxable income. Few alternatives to 401(k) accounts can mimic this benefit.

Let’s say you have a salary of $100,000 per year.

If you contribute 8% of your salary, not only are you investing $8,000 of untaxed earnings but now Uncle Sam will only consider the remaining $92,000 to be taxable. It’s a rare win-win situation for the little guy when it comes to tax season.

Alternatives to 401(k): Customize Your Investment Strategy

There are definitely advantages to contributing to a 401(k), and it’s easy to understand why it remains one of the most popular investing options. But it’s also important to take a step back to think about what you’re ultimately trying to accomplish.

Here are some alternative ways to invest in your financial future (both short- and long-term) that may be better suited for you and your retirement goals. Let’s step through these alternatives to 401(k) accounts one by one.

Assess Current Financial Obligations

Retirement should be one of your top financial priorities once you enter the workforce, but that doesn’t mean you need to throw every last penny towards it right away.

In the beginning, contribute what you can while still maintaining current financial responsibilities.  Once you start to build up a solid financial foundation, you can begin to increase your contribution accordingly.

Another top priority is that emergency fund. Ideally, everyone should aim to have four to six months’ worth of expenses stashed away somewhere nice and safe. If you don’t have that money set aside, then putting less into the 401(k) and more into your savings may be more beneficial. 

Debt is also a big factor to consider when determining your contribution.  For as much as compounding gains can help you, compounding interest payments can be devastating. The interest rate on debt is typically guaranteed, but the rate on your investing gains often isn’t.

While you don’t need to wait until you are 100% debt-free before investing, you do need to be able to comfortably make all debt payments (and preferably extra) before amping up your 401(k) contributions.

Don’t Limit Yourself

Remember that diversity objective? Well, in my opinion, you can’t get a truly diversified portfolio in a 401(k).

Most companies provide a basket of 20-30 different mutual funds to choose from, and that’s all you get. Yes, by nature mutual funds will give you some degree of diversity. But you can’t reach the same levels that a traditional investment account can offer.

Plus, I wouldn’t want someone telling me what I can and can’t invest in. It’s my future! Alternatives to 401(k) accounts can open more doors.

And here’s a heads-up: mutual funds charge fees for managing your money—often called the expense ratio. Make sure to look for funds with low expense ratios. Index funds are typically the lowest.   

Index Funds fees can be significantly lower

Alternative Investments Can Potentially Offer Higher Returns 

Buying individual stocks isn’t typically available through 401(k) accounts. But historically, stocks have much higher returns than bond-laden mutual funds. Plus, there are no management fees when you pick your own stocks! You buy them at a fixed price and that’s that.

Yes, there’s a higher risk involved with hand-picking stocks. But the objective here is to grow your money as much as possible. If your risk tolerance is low, then you may want to stick with mutual funds. 

For those who are willing to roll the dice on alternatives to 401(k) funds, stocks are the way to go. Investing in stocks while still contributing to 401(k) mutual funds can both increase your returns and diversify your portfolio.

Investing isn’t limited to the stock market either. In today’s world, there are tons of different investment opportunities. Money can be invested in ways that weren’t always available to individual investors in the past. There are sites that let you invest in startups, cryptocurrency, online REITs, and the list goes on.

Each alternative to 401(k)s comes with a unique riskreward profile. But again, it’s all about diversifying and maximizing those returns. If you’re younger and can afford to take risks, then the choice is yours.

401(k)s don’t typically provide the opportunity to make these kinds of higher risk, higher reward investments.

Use Alternatives to 401(k)s to Align Overall Retirement Goals

Most people just assume they’ll work until they’re 55, 60, or 65 years old and use the 4% Rule. But that’s not for everyone—I know I don’t plan on it!

If you’re looking forward to an early retirement like I am, you’ll need access to your money. This may be a problem if most of your investments went into your 401(k), as you can’t begin to make penalty-free withdrawals until the age of 59½. The money will be sitting right there, but you can’t touch it without getting slapped. 

Having a well-diversified and accessible investment portfolio will allow you to retire when YOU decide you can. 


401(k) accounts have their advantages and deserve a place in your retirement portfolio. They offer several tax benefits and might give you free money, making it a no-brainer to contribute to them right away.

But you shouldn’t overlook the other options out there. There are alternatives to 401(k) accounts that have lower fees and higher returns. The money saved from fees and gained from higher returns could potentially outweigh the taxes you might save. It’s a big balancing act.

But remember: whatever you decide to invest in, it’s bringing you closer to your retirement goals and financial freedom!

Thanks again to Jeff Cooper of Have Your Dollars Make Sense for today’s article.

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How to Maximize Social Security: 7 Ways to Get Bigger Checks

Divorced? If you’re not remarried, you could claim benefits based on your ex’s record under the above rules, provided that your marriage lasted at least 10 years. (No, you won’t affect their benefits.)

7 Ways to Maximize Your Social Security Benefits

Deciding when to take Social Security is a complicated piece of retirement planning. Some people opt to start benefits sooner and take smaller checks, while others try to hold out for the biggest check. If you’re in the latter camp, we’ll discuss some strategies for how to maximize your Social Security benefits.
There’s a limit, though. Social Security has an earnings cap. Money that you make above that amount isn’t taxed, and it also doesn’t affect your future benefits. In 2021, Social Security only taxes the first 2,800. If you make 0,000 or even million, Social Security will still consider your income 2,800 for the year.

1. Work at least 35 years.

Once you’ve reached your full retirement age, you can suspend your benefits to earn 8% delayed retirement credits. You’ll be able to restart them for a higher amount whenever you want. Social Security will automatically resume your payments once you’re 70.
You typically need the equivalent of 10 years of full-time work to qualify for Social Security. But you’ll get the highest benefit if you stay on the job for at least 35 years.
One thing we want to make clear, though: Don’t count on Social Security cost-of-living adjustments to make much difference. Benefits increase at a snail’s pace compared to the actual costs of living for senior citizens. The most recent Social Security COLA was an anemic 1.3%.

2. Earn more money.

You can take benefits as early as age 62. But every year you claim before your full retirement age reduces your benefit by 6.66%. Once you reach full retirement age, you can also wait even longer. You’ll get an extra 8% delayed retirement credit for each year until you hit 70. At that point, delayed retirement credits stop. Waiting until you reach age 70 can result in a monthly benefit that’s 77% higher than if you claimed at 62.
If you’re a regular W-2 employee, you don’t have to worry about reporting your earnings to Social Security because your employer handles that and also deducts the payroll taxes that fund Social Security and Medicare on your behalf. But if you underreport income you earn from tips, freelancing or self-employment, you’re not just putting yourself at risk of troubles with the IRS. You could reduce the amount of Social Security you get later on.

3. Report all your earnings.

If you don’t qualify for much Social Security based on your own record, you may be eligible for more based on your spouse’s record. You can get up to 50% of your spouse’s full retirement benefit once you reach your full retirement age provided that you’ve been married for at least a year.

4. Wait as long as you can to take benefits.

Social Security uses your 35 highest-earning years to calculate your benefit.
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Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].

5. Avoid taking benefits early if you’re still working.

If you only worked 32 years, they’d use your 32 years of earnings plus three zeroes to get your 35 years. Working more than 35 years can pay off if you’re making significantly more than you were in your early career because you get to replace some of those low-earning years with higher wages.

  • $1 for every $2 you earn above $18,960 until the year you reach full retirement age.
  • $1 for every $3 you earn above $50,520 the year you reach full retirement age until your birthday.

We’re going to be honest: There are no easy shortcuts that will get you more Social Security. Any strategy that will boost your benefit boils down to: Work longer. Earn more money. Wait as long as possible.

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6. Marry someone who qualifies for a bigger benefit.

The average monthly Social Security benefit in 2021 is ,543, so it’s not going to buy you a luxurious retirement. But those monthly checks can certainly make your golden years more comfortable.
Most people will have to make do with much less than the maximum benefit. The less you can rely on Social Security, the more comfortable you’ll be. If you’re still working, the best thing you can do is keep socking away as much as you can in a retirement account.
Up to 85% of your Social Security benefits are taxable, depending on your income. Saving in a Roth IRA is a good way to limit your tax bill since distributions won’t count as taxable income.
If you take Social Security early while you’re still working, your benefits will be reduced by the following amounts in 2021:

7. Stop your benefits if you claimed them too soon.

We get it: If only you could snap your fingers and suddenly make more money. But we’re just explaining the rules here. If you’re able to find a better-paying job or boost your earnings with part-time or freelance work, you’ll get more money out of Social Security.
So if your full retirement age is 67 and your spouse’s full benefit is ,000 a month, you’d qualify for a ,000 a month spousal benefit if you started at 67. If you took benefits a year early, you’d get 4 a month, because you’d reduce your benefits by 6.66%. You can’t get those delayed retirement credits of 8% per year based on a spouse’s record, though, so you’ll get your maximum benefit at your full retirement age of 66 or 67.

Can You Get the Maximum Social Security Benefit?

Once you reach full retirement age, your earnings won’t affect your benefits.
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If your current or ex-spouse dies, you could qualify for 100% of their benefit, including any delayed retirement credits they earned. However, you can’t earn those 8% credits by waiting past your own full retirement age to claim. <!–


If your retirement funds are lacking, delaying Social Security payments for as long as possible is one of the best things you can do. Full retirement age is the age when you qualify for 100% of your benefit. For most workers, it’s between 66 and 67, depending on when you were born.