Finance 101: June 2025
In June the financial advisors at Ruedi Wealth Management wrote four more columns for The News-Gazette’s Business Extra section. Make sure to look for them every Saturday in the weekend edition of the paper, but in case you missed any in June all four are below.
Working in Retirement: A Million-Dollar Strategy
By Daniel Ruedi, CFP®, RICP®
When many people think of “retirement,” they often think of a full stop at age 65. But these days, more retirees are easing into retirement by working part-time, consulting, freelancing, or turning hobbies into income. Some do this just to stay busy, but it’s also a smart financial move that can significantly stretch retirement savings.
According to the 4% rule, a person can safely withdraw about 4% of their retirement savings per year without running out of money over a 30-year retirement. That means if you want to generate $40,000 a year in income, you’d need to have roughly $1,000,000 saved. But there is another side to that coin: earning $40,000 per year after tax from part-time work is essentially the same, financially, as owning a million-dollar investment portfolio!
That’s a powerful concept that’s reshaping how people approach the idea of retirement. For many, working a few days a week or doing seasonal work can cover daily living expenses while allowing investment accounts to grow a little longer. It may also help delay drawing Social Security, which increases your benefit amount the longer you wait (up to age 70).
Of course, it’s important to be mindful of how earnings affect taxes and benefits. For example, if you take Social Security before your full retirement age and earn above a certain threshold, your benefits may be temporarily reduced. For 2025, this threshold is $23,400, and benefits are reduced by $1 for every $2 of income above that limit. But with careful planning, these tradeoffs can be managed.
The benefits aren’t just financial. Studies consistently show that working in retirement can improve mental and physical health. It offers a sense of purpose, routine, and often a social outlet. These are things that many retirees find they miss more than they expected. Thanks to remote work opportunities and the gig economy, it’s easier than ever to find flexible options that fit your schedule and interests.
Though working in retirement may make some question whether they are actually “retiring,” even a modest income can be a tremendous asset to those who are relying on limited savings to fund their lifestyle. The ability to work part-time can provide people with the opportunity to leave a job they dislike sooner than they could by waiting to fund their retirement with just their assets and Social Security. Retiring into part-time work can be a great opportunity, but still requires careful planning. If you need help with that, you may want to talk to a retirement planner.
Daniel Ruedi is a CERTIFIED FINANCIAL PLANNER™ professional with Ruedi Wealth Management in Champaign, Illinois.
The Hidden Downsides of Annuities
Paul Ruedi
At first glance, annuities seem like the perfect solution—an income stream you can’t outlive, tax deferral, and freedom from fluctuating portfolio values. But before you lock up your retirement savings in one, it’s important to understand the less-advertised downsides.
Annuities are often complex and confusing. They come in many forms—fixed, variable, indexed, immediate, deferred—and each version has its own rules, riders, and fine print. Some contracts are so complicated that even experienced advisors need hours to fully understand them. If you don’t clearly understand what you're buying, there’s a real risk you’ll end up with something that doesn’t align with your goals or expectations.
The fees associated with annuities can be surprisingly high. Variable and indexed annuities, in particular, often include multiple layers of costs: mortality and expense risk charges, administrative fees, investment management fees, and charges for optional riders like guaranteed income or enhanced death benefits. In some cases, total annual fees can exceed 3%, which may significantly reduce the long-term performance of your investment.
Annuities can also limit your access to your own money as they typically come with “surrender periods” that last seven to ten years or more. If you withdraw funds early, you could face hefty surrender charges. Additionally, taking money out before age 59½ may trigger a 10% early withdrawal penalty from the IRS. For those who value financial flexibility, this can be a significant drawback.
The tax treatment of annuities isn’t always as favorable as it seems. While the tax-deferred growth inside an annuity is appealing, withdrawals are taxed as ordinary income rather than at the lower capital gains rate. This can result in a larger tax bill, especially in retirement. Income from annuities can increase the taxation of your Social Security benefits and impact your Medicare premiums.
On top of all that, annuity guarantees are only as secure as the insurer behind them. If the insurance company that issued your annuity experiences financial difficulty, your guaranteed income stream could be at risk. While state guaranty associations offer some protection, their coverage limits vary and often don’t fully protect larger annuity balances.
Annuities can have a place in a retirement plan, but often the downsides outweigh the benefits. Before buying, you must weigh the benefits against the drawbacks based on your unique situation. If you need help deciding if an annuity is a good fit for your retirement, you may want to talk to a retirement planner; preferably one who is not compensated for selling annuities.
Paul Ruedi is the CEO of Ruedi Wealth Management in Champaign, Illinois.
Fun with Investment Calculators
Paul R. Ruedi, CFP®
As a financial planner, I have advanced tools for financial analysis at my disposal. But when I need to quickly test something myself or provide an example for educational purposes for these columns, I find myself defaulting to the most basic possible financial calculators.
There are tons of online calculators that can provide you with perspective on investing and how investments grow over time. But it is important to remember to use sensible inputs that are in some way rooted in reality. Let’s work through an example.
Though there are several calculators available for free online, I tend to use the investment calculator that is available on calculator.net. If you type in “investment calculator” into google, it tends to be the first result. This “simple” calculator requires 7 different inputs: starting investment amount, length of time, rate of return, how often that rate compounds, additional contributions, how often those contributions are made (monthly or yearly) and whether those contributions were made at the beginning or end of the month/year.
Suppose a person wanted to project their future investment account balance in 20 years based on a current investment portfolio size of $100,000 and additional savings of $1,500 a month. That person could type in $100,000 into the starting amount box, 20 years into the time period box, and $1,500 into the additional savings box. Let’s assume the $1,500 contributions are made at the beginning of each month, and the investments compound monthly.
Though it is impossible to know what returns will be in advance, many people do these types of calculations using a 7% real return for stocks based on historical compound stock returns of close to 10% minus historical inflation of around 3%. Given all these inputs, the end result is an account balance of $1,189,821.98.
But now that we have that as a starting point, we can play around with different inputs and see the impact. What if I save $2,000 per month? The end result is $1,451,804.68. What if I save the same $1,500 monthly but delay retirement so I have 25 years of saving and investing instead of 20? End result is $1,794,737.49.
Perhaps I am just a nerdy financial advisor, but I think it is kind of fun to play with different inputs and see the impact. At the very least, doing these calculations can give people an intuitive sense of investment growth and the impact of different variables. But if that doesn’t sound like fun, you may just want to hire a financial advisor to do your calculations for you.
Paul R. Ruedi is a CERTIFIED FINANCIAL PLANNER™ professional with Ruedi Wealth Management in Champaign, Illinois.
War in Iran
Paul Ruedi
I have to admit, I had to rewrite this column from its original form. With the war in Iran dominating the headlines over the weekend, I was sure many investors would be wondering what impact it will have on them, and if they should make changes to their investment portfolios. Though I wasn’t certain how this particular conflict would play out, when it comes to investing, my advice for how to handle geopolitical turmoil has always been the same: ignore the headlines and do nothing.
My original column was intended to prepare people to accept the Iran war as a reality, but not worry so much about the impact it will have on the stock market. I’ll admit, as I wrote this column on Monday, even I was a bit concerned, not from an investment standpoint but from a global stability standpoint.
But only a few hours later a ceasefire agreement was reached, easing everyone’s worries tremendously. I’m sure many investors experienced the same whiplash of emotions over the same time period. Some of them likely acted on those emotions and made mistakes.
So rather than focusing on keeping investors in their seats for a long, drawn-out conflict, I come to you with a slightly different lesson about getting too emotionally invested about what is going on in the news. Had investors simply been on vacation and ignored the news for just a couple days, they would have missed all this anxiety entirely. You just never know how fast things can resolve themselves. You also can’t be sure that your investments will perform terribly even if a conflict rages for years.
But what would have happened if the conflict hadn’t resolved itself so quickly? Well, we’ve actually seen that movie too in recent history. A few years ago I wrote a column about what was then a new war in Ukraine. I advised then, as I always do, that investors should do nothing and stick with their investments.
Though 2022 was a rough year for investors, 2023 and 2024 more than made up for it with spectacular returns, despite the fact the Ukraine war persists to this day. Of course, past performance is not an indicator of future results. But it can provide important lessons.
It is imperative to ignore the startling headlines and stick with your investments through good times and bad if you want to be a successful investor. It sounds simple, but it isn’t easy. If you have trouble tuning out the noise and sticking with your investments during geopolitical turmoil, you may want to talk to a financial advisor.
Paul Ruedi is the CEO of Ruedi Wealth Management in Champaign, Illinois.
*Disclaimer: Past performance is no indication of future results. You should not make any investment decisions without first performing your own due diligence and consulting your financial advisor.