25 Quick Tips That Can Improve Your Retirement Planning
Retirement planning is serious business that requires diligence and patience. But a quick tip or even an irreverent quip can sometimes be helpful too. Here are 25 observations from my 30 years of writing about retirement and investing that may spur you to plan more effectively (or start to plan if you’ve been putting it off).
1. If you’re not sure whether you’re saving enough for retirement, you probably aren’t. You can find out for sure pretty easily, though, by going to this Am I Saving Enough? tool.
2. There’s an easy way not to outlive your money: die early. But I think most people would agree that coming up with a realistic and flexible retirement income plan is a more reasonable way to go.
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3. If your primary rationale for doing a Roth 401(k) or Roth IRA instead of traditional version is that “tax free is always better than tax-deferred,” you need to read this story before doing either.
4. Some people put more thought into whether to have fries with their Big Mac than deciding when to claim Social Security benefits. Unfortunately, giving short shrift to that decision may put those same people at greater risk of having to jump behind a fast-food counter in retirement t0 maintain their standard of living.
5. Yes, stocks are risky. But if they weren’t, they wouldn’t be able to generate the high long-term returns that can help you build a sizeable nest egg without devoting a third or more of your income to saving.
6. Just because the mere thought of an immediate annuity makes your eyes glaze over doesn’t mean you shouldn’t consider one for your post-career portfolio. When it comes to retirement income, boring can be beautiful.
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7. What do rebalancing your retirement portfolio and flossing have in common? We know we ought to make both part of our normal routine, but many people don’t get around to either as regularly as they should.
8. Lots of people (especially in the press) complain that we’d all be a lot better off if companies would just go back to giving workers check-a-month retirement pensions instead of 401(k) plans. But that’s not gonna happen. So focus your efforts on how to maximize your 401(k) or other savings plan.
9. Target-date funds’ stock-bond allocations can’t match your risk tolerance exactly. But guess what? You don’t need an exact match to invest successfully for retirement. And for most people an inexact target-date portfolio is a lot better than anything they’d build on their own.
10. A really smart fund manager can beat an index fund. Problem is, there’s no way to tell in advance whether a manager is one of the handful who’s truly smart or one of the many who look smart but are just lucky or having a few good years. That’s why you’re better off going with index funds in your retirement portfolio.
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11. Your employer’s 401(k) match isn’t really “free.” It’s part of your compensation. Which makes it all the more puzzling why anyone wouldn’t contribute at least enough to his 401(k) to get the full company match.
12. Investing in a fund with high fees is like betting on a racehorse being ridden by a fat jockey. Sure, the horse could still be good enough to win. But do you want to put money on it? A low-cost fund effectively allows you to boost your savings rate and gives you a better shot at building an adequate nest egg and making it last throughout retirement.
13. Every time you move to a new house or apartment do you leave all your furniture and other possessions behind? Then why do so many people fail to consolidate their old 401ks into their current plan or a rollover IRA? (Okay, if the old plan’s investing options are unmatchable, that’s a reason. But seriously, how often is that the case?)
14. A reverse mortgage can be a good option to supplement retirement income if your other resources are coming up short. But be sure to consider a trade-down as well. In fact, you may be able to trade down and then do a reverse mortgage in the future.
15. No rule of thumb can be a substitute for detailed retirement planning. But some rules of thumb are better than no planning at all. And going with a rule of thumb may at least help you get on track toward a secure retirement until you decide to get more serious about your planning.
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16. Many people are skittish about investing in bonds these days because they’re worried they’ll get clobbered when interest rates rise. But you know what? Pundits have been predicting bond Armageddon for years and it hasn’t happened. Besides, as this research shows, even at today’s low yields bonds remain an effective way to hedge equity risks and diversify your portfolio.
17. People peddling high-cost variable annuities know that retirement investors love the word “guaranteed.” Which is why as soon as you hear that alluring word, you should ask what, exactly, is being guaranteed and who is doing the guaranteeing? Then ask how much you’re paying for that guarantee and what you’re giving up for it? The answers may surprise and enlighten you.
18. No retirement calculator can truly tell you whether you’re on track for a secure retirement because no tool can fully reflect the uncertainty and complexity of real life. Of course, the same goes for the most sophisticated software and human advisers too. The reason to fire up a good retirement calculator isn’t to come away with a projection that’s 100% accurate. It’s to get a sense of whether you’re on the right course and see how different moves might improve your prospects.
19. You don’t have to be a financial wiz to invest successfully for retirement. But understanding a few basic principles can improve your investing results. Try this investing quiz to see how much you know.
20. Getting fleeced by an unscrupulous adviser or ravaged by a severe bear market can certainly wreak havoc with your retirement plans. But for most people it’s basic lapses in investing and planning that diminish their retirement prospects the most.
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21. Many experts say the 4% rule is broken, that it no longer works in today’s low-return world. Fact is, the 4% rule was never all it was cracked up to be. To avoid running out of money in retirement, plug your spending, income and investing info into a retirement income calculator capable of assessing the probability that your money will last—then repeat the process every year or so to see if you need to adjust your spending.
22. Diversifying your portfolio can lower risk and boost return. But if you try to get too fancy and stuff your portfolio with investments from every obscure corner of the market and all manner of arcane ETFs, you may end up di-worse-ifying rather than diversifying.
23. Many retirees pour their savings into “income investments” like dividend stocks and high-yield bonds when they want to turn their savings into reliable income. But such a focus can be dangerous. A better way to go: create a low-cost diversified portfolio that generates both income and growth, and then get the income you need from interest, dividends and periodic sales of fund or ETF shares.
24. The next time wild swings in the market give you the jitters, don’t look to bail out of stocks and huddle in bonds or cash. Market timing doesn’t work. Instead, do this 15-minute Portfolio Check-Up, and then take these 3 Simple Steps to Crash-Test Your Portfolio.
25. Financial security is definitely important, but retirement satisfaction isn’t just a question of money. Lifestyle matters too. Among the lifestyle factors that make for a happier post-career life: maintaining your health, staying active and engaged through occasional work or volunteering, cultivating a circle of friends…and, yes, regular sex. (2/10/15)
Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at email@example.com.