When Robert submitted this, he advised, "File this under the 'long and tedious but important' category. It might need pictures of cats." So, once again, J.D. has obliged with photos of one of his cats.

Want to have more money and pay less in taxes? It's easy! Just call this number and send in your three easy payments of — no, wait. Actually, all you have to do is learn a little about asset location. No, not asset allocation — asset location: deciding which assets should go in which accounts. A recent surge of Roth assets, thanks to the increasing availability of the Roth 401(k) and the wave of conversions that occurred last year, makes this a particularly timely topic.

Wait! Don't leave! Though a little tedious, this is an important subject.

To understand asset location, you need to remember that most investors have accounts that receive different tax treatment, such as the following:

Hello, GRSers. Today, let's revisit something I tacked on to the end of my nine lessons from The Millionaire Next Door:

[T]here are actually two benefits of learning to live on much less than your paycheck.

• The first, of course, is that you can save more.
• But secondly, it also means that you ultimately need to save less.

Permit me to demonstrate.

When a friend of mine changed jobs recently, she discovered she had half a dozen old 401(k)s trailing her from her past jobs. She wanted to get on top of her financial planning, but wasn't sure what to do with all those old investments. she asked me for advice.

Truth is, I wasn't sure either. I cashed out my one 401(k) to buy a house several years ago. I know that was a dumb move in the larger financial story of my life. Saving early for retirement is one of the best ways to build wealth. I can't undo it now, though, and I've been so focused on paying off debts I haven't thought much about retirement planning for years.

As my debt burden shrinks, it's time to start thinking about my own investment strategy. So I looked into my friend's question: What should she do with those old 401Ks?

"Wanna see something neat?" Kris asked the other night. She was holding the year-end statement from her work-based retirement plan.

"Sure," I said. "Show me the money."

She handed the statement to me. "Look at my account balance," she said. "Look how it's grown. It went down a little bit in 2008, but because I kept contributing, the balance has gone crazy during the last two years."

As more of my friends enter middle age, they're talking less about how to care for their kids and more about how to care for their parents. Our mothers and fathers are nearing (and, in some cases, surpassing) seventy years of age, and not all of them are financially prepared.

A GRS reader named Shauna recently wrote with a typical scenario:

My husband and I are in our early thirties and finally getting our finances in order after years of piling up debt. We both have parents who were never particularly good with money, and they've entered their early retirement years with no savings or assets to speak of — no houses, no savings, no emergency fund. We're looking down the road, and realizing that we will probably be financially responsible for all of them at some point in the not too distant future. Do you have any advice for us? Continue reading...

More about...Planning, Retirement

This is one of those boring articles about investing that is actually very important. To liven things up, J.D. has illustrated this article with photos of one of his cats.

It's quiz time, folks. See if you can answer any or all of the following questions:

• Do you know what your entire portfolio earned over the past year?
• What's your best-performing investment? Your worst?
• If you invest in mutual funds, do you know how many of your funds are beating their benchmarks?
• Would you have been better off investing in a collection of index funds?

Did you have answers to all those questions? If you did, how confident are you that your responses are accurate?

When planners talk about retirement, they often use the metaphor of a three-legged stool. The three legs of this metaphorical stool include:

• Social Security
• Employer-sponsored retirement plans (pension, 401k)
• Personal savings (IRAs, CDs, savings accounts)

With Social Security income becoming less and less reliable, and traditional pensions all but extinct, the three-legged stool has become quite a balancing act: Today's retirement plan is not your father's retirement plan!

Two Legs Down, One Questionable
Social Security will pay out more this year than it gets in payroll taxes, and leaders in Congress are now seriously talking about raising the retirement age to 70. Also, the traditional pension plan, especially in the wake of the Great Recession, is all but dead.

We hear a lot about the doubts over the future of Social Security. Here are a few I've come across:

• "Three-fourths of those 18 to 34 don't expect to get a Social Security check when they retire." — USA Today

• “My husband and I are both 28, and we laugh every time we hear [‘yes, you'll receive Social Security']. No, we won't receive Social Security, even though we've both been paying into it since we were teenagers...I can't think of one of my peers who expects Social Security to still be around when we're retirement age. Call us bitter.” — A comment to my last column (“When Will You Be Able to Retire?”)

• “Six in 10 Americans who have not yet retired believe they will get no Social Security benefits when they retire, more pessimistic than at any time since Gallup began asking this question in 1989.” — Gallup

• “According to one survey, 100% of people married to Robert Brokamp wish he would shave his head rather than try to pull off a comb-over.” — My wife

If you're among the doubters (of Social Security, not my hairdo), then listen up: The following paragraph is the most important group of words you'll ever hear regarding Social Security. It's key to understanding how the program works, and whether you'll get anything. Here it is:

Social Security is predominantly a pay-as-you-go program. Most of the payroll taxes that are collected from today's workers go into the checks of today's beneficiaries. Thus, as long as there are people working and paying payroll taxes, there will be money to pay Social Security benefits.

According to the m

Permit me to introduce a new term into the financial planning lexicon: goals-based budgeting. (Well, a Google search turned up a few other instances of its use, but they're on government websites, so no one has seen them.) I came up with the term after reading through the comments of my last article (“The High Cost of Modern Living”) and reading J.D.'s recent article about his entry into the Third Stage of personal finance, which he explained thusly:

I've paid off my debt, built a cash cushion in savings, and am maxing out my retirement accounts. And after doing all of these things, I have money left over to spend on comic books and travel.

In my previous article, I listed several items we spend our money on — for instance, cell phones, cable TV, chocolate-covered pork fat — that didn't exist in the past, and suggested that the allure of these modern inventions may explain why some people haven't saved enough for retirement.

So, you find the lazy way to invest very appealing: You like the simplicity and the long-term results. But you don't want to bother with building your own lazy portfolio of index funds and adjusting it as you get older (same as creating your own target-date fund). At this point in your life, you just want a set-it-and-forget-it solution, at least until you feel more comfortable building your own investment portfolio. Target-date funds seem perfect for the job, but which one is right for you? Let's walk through choosing a target date fund.

Related >> Investing 101: An Introduction to Index Funds and Passive Investing