When I help my mom with her banking, she’ll invariably talk to me in Yiddish to avoid anyone overhearing the details of her financial situation. Unfortunately, I’m in the dark as well, just as I was growing up when she and my dad spoke Yiddish at the dinner table to avoid disclosure of secrets they wanted to keep.
Mom did, however, teach me one Yiddish phrase that I always think about when I’m writing about retirement-planning topics: aroysgevorfn gelt. According to Mom — and various Yiddish dictionaries — the phrase means a waste of money, a useless purchase or an investment that did not prove fruitful. You can probably retire sooner and enjoy a more satisfying retirement if you avoid situations that turn out to be aroysgevorfn gelt.
For example, it’s aroysgevorfn gelt for employees to pass up their employer’s contribution to their 401(k) or some other retirement savings plan. Typically, employers contribute 50 cents for each dollar employees save, up to 6 percent of their salary. You should try to contribute at least enough to receive the full matching contribution. If you pass up this free money, mitten derinnen (suddenly), you’ll be retirement age and won’t have saved a dime.
It’s also aroysgevorfn gelt to pass up tax breaks. IRAs, 401(k)s and other retirement savings plans now have higher limits. If you’re age 50 or older, you can put away even more money in these accounts and save more for retirement. The Roth IRA enables you to save for the future, and qualified distributions will be tax-free, as long as you’re 59 1/2 and you’ve left the money in your account for at least five years. Unlike the traditional IRA, you’re not required to begin making withdrawals at age 70 1/2.
In addition, it’s aroysgevorfn gelt to ignore the asset allocation strategy. The asset allocation strategy keeps you from being a chazer (pig), even if you greedily want to ride the stock market to its highest peak. It forces you to diversify your assets, instead of going for broke by putting all your money in the stock market.
The asset allocation strategy requires you to rebalance periodically and shift assets from one class to another. Often this means shifting assets away from strong performers to underperforming assets. Although this goes against your intuition, it’s the best way to reduce volatility in your portfolio.
Rebalancing in a tax-sheltered retirement account won’t cause you a tax problem. In contrast, when you shift assets in a non-retirement account, you may owe capital gains taxes. At a minimum, diversify the new money that you’re investing in retirement and non-retirement accounts.
When the stock market was booming in the late 1990s, everyone was a maven on investments. At cocktail parties, every macher bragged about how much he or she made on a hot new Internet company or technology stock. As many people found out, it’s aroysgevorfn gelt to buy stocks based on a hot tip from some mamzer (bastard) without thoroughly investigating the company.
Assuming you’ve bought shares of well-managed companies and mutual funds, it’s aroysgevorfn gelt to sell off your portfolio during a bear market because you’re short of cash. Let’s say you need $60,000 to live on after taxes each year. If Social Security benefits, a pension check and other income account for $40,000 yearly, you have $20,000 worth of living expenses to worry about. By having five years of living expenses in investments you can get at without losing money, you won’t be forced to liquidate your stock portfolio when equities are doing poorly. You’ll be able to ride out even a lengthy bear market.
As Mom would say, planning for retirement doesn’t have to drive you meshuggah. You can enjoy a long, healthy retirement, kin ahora (knock wood!), with plenty of gelt to pursue your dreams. My dream is to learn Yiddish one day.
Attorney Les Abromovitz is the author of “Protecting and Rebuilding Your Retirement” (Amacom, 2003) and Long-Term Care Insurance Made Simple (Health Information Press, 1999).