5 Easy To-Dos To Check Off Your Retirement Plan List

Everyone loves a simple list to feel like they’ve accomplished something meaningful. Here is an easy-to-follow checklist for you on your way toward a sustainable retirement from Front Street Wealth Management in Traverse City.

Featured in the 2019 issue of MyNorth Inspired Life

JUST DO IT; COMMIT TO AT LEAST A 10% SAVINGS RATE.

If you are enrolled in a company-sponsored retirement plan, like a 401(k), be sure to voluntarily save at least as much as your employer has agreed to match. That’s just free money. Counting any matching funds, work to set aside enough to at least squirrel away 10% to 15% of your income. While you might need to tweak this, based on your particular needs and goals, a minimum target of 10% is a nice, round figure. The longer you wait, the more sacrifice that’ll be required later. It’s really as simple as that.

LIKE YOU, YOUR PORTFOLIO SHOULD PROBABLY LOOK ITS AGE.

The highest level review you can do focuses on what’s known as your asset allocation. Studies have shown that about 90% of your portfolio risk is defined simply by your chosen asset allocation. Naturally, the proper mix of stocks and bonds depends directly on how much time you have left until retirement. Setting a glide path to an increasingly balanced portfolio is just plain prudent. And, no glide path can be created, let alone followed, if you don’t know where you are today. Here’s an overly simplistic rule-of-thumb for you. Your portfolio’s allocation to stocks should be no higher than your current age subtracted from 100. It’s really not a silly place for you to start the conversation.

PAYING HIGH INVESTMENT COSTS IS LIKE TRYING TO WALK THE WRONG WAY ON THE ESCALATOR.

Outside of your asset allocation, the second most important thing to consider is your investment costs. The sad fact is most investors have little idea how much their chosen investments and investment advice costs. Here’s another rule of thumb. Make sure the average “mutual fund expense ratio” in your portfolio is no more than 0.5% per year. And, if you enlist an advisor, don’t pay them much more than 1% per year. Clearly, a combined total investment cost of 1.5% per year is a lot. Now, I’ve seen worse, so I’ve created an easy box for you to check off! (Tip: You can get sound investments and strong advice for lower.)

IMAGINE AND RE-IMAGINE YOUR FUTURE RETIREMENT.

When it comes to hitting your retirement goal, you really need to get a rough handle on how much your retirement lifestyle will actually cost. Think of this as figuring out your “cash flow hurdle.” Let’s be honest, nobody likes the word, budget. Within your rough guess, be sure to keep in mind that your mortgage, other debt costs and all those expenses for the kids that currently occupy a portion of your life costs will likely disappear in retirement.

THE BEST LAID PLANS OFTEN GO AWRY.

It’s always important to recognize that things are bound to change. It’s a rarity that a plan will unfold as planned. For this reason, it is my firm belief that no retirement plan should ever be viewed as chiseled in stone. It’s much more like you’re thoughtfully doodling on a whiteboard. Embrace flexibility by setting your goal and don’t be afraid to erase as needed.

Jason P. Tank, CFA is the owner of Front Street Wealth Management, a purely fee-only advisory firm in Traverse City, and the founder of the Money Series, a program committed to providing open-access to financial education, for all.