5 Steps to Maximize and Manage Your Retirement Savings

November 28, 2014

Maximize and Manage Your Retirement Savings

There are a few common mistakes that many people make when managing their retirement plans. They either don’t put enough toward retirement and leave money on the table (by not taking advantage of matching contributions), or their savings get eaten up by expenses and fees.

Adding to the problem can be issues like holding on to the wrong asset allocation or failing to diversify (or diversify enough). Too many savers and investors ignore the fact that their portfolio needs to reflect individual age, retirement, and risk needs.

If you’re younger, you can get away with a more risky, aggressive asset allocation, because you have several years to make up for any losses. Those that are closer to retirement need to scale back on the risk in order to keep what they currently have for retirement.

And if you don’t pay attention to the funds you’re buying, you could experience an overlap in investments. Some funds have the same holdings or objectives, which means your returns are going to be average.

You don’t want to be making any of these mistakes when it comes to planning for retirement. And you can avoid them with our tips on how to maximize and manage your wealth.

5 Steps to Maximize and Manage Your Retirement Savings

Generally, maximizing your retirement savings can be boiled down to simply understanding what your choices are and choosing investments according to your goals and circumstances.

Unfortunately, many people hesitate to dig deep into their options when it comes to retirement plans, and as a result, their earnings suffer.

Let’s help you avoid that and make sure your retirement plan is on the right track with these 5 steps:

Step One: Locate and Organize Your Retirement Plan Investment Options

Investment options within retirement plans can vary. Some plans offer 6 to 10 investment choices, while others offer thousands of investment choices.

Look into the choices that are available to you, and evaluate how well they work with your retirement goals, risk profile, and outside investments.

Don’t be afraid to ask your employer for help, especially if you have a plan with numerous choices to pick from. It can be overwhelming to look at first — but you don’t want to potentially be losing out on thousands of dollars a year, right?

Educate yourself, ask for help, and put the work in. It’ll be worth the effort.

(And if you’re self-employed, don’t be afraid to ask for help from a financial pro that’s willing to work as your fiduciary. This applies even if you’re employed and have someone at work to help you. Don’t hesitate to seek out third-party advice.)

Note – if your retirement plan uses mutual funds, track down the ticker symbols for each investment option. You’ll need it later!

Step Two: Review Retirement Goals

Think about what retirement will look like for you. There is no one right or wrong answer here, but your answer will help you to determine how much money you”ll need. This will largely be based upon your age and when you want to retire.

Your age is an important factor because time will be on your side if you’re younger (and against you if you’re older) due to the power of compound interest.

That doesn’t mean you need to immediately panic if you’re starting a little later. Know that getting your plan settled now will help you make up for any losses/lack of savings in your past.

Besides that, think about what you want from retirement. Do you want to travel around a lot, play golf year-round, or have the freedom to dine out every night? You’ll want to account for these expenses so you have an accurate idea of how much money you’ll need in retirement.

Try drawing up a mock budget for your ideal retirement. This exercise can help you get a better idea of what you’ll spend if you do everything you want to once retired. You can then get another estimate of how much you’ll need because you’ll have a detailed guess at what you plan to spend.

Step Three: Asset Allocation and Risk Profile

Your risk profile is one of the primary foundations for determining how to allocate and manage your retirement plan option. You may want to to speak with a trusted financial professional to help you evaluate your risk level and determine the portfolio strategy that is appropriate for your investments.

This strategy can then be used to create an investment allocation that matches your profile and retirement goals.

As a very general rule of thumb, if you’re younger you can afford to invest with more risk in mind. You have years to make up for any losses. If you’re older, you’ll want to scale back on the risk and invest more conservatively. You don’t want to face losses so close to retirement.

Step Four: Objectively Analyze Investment Options and Fees

Yahoo, in partnership with Morningstar data, has an outstanding fund analyzer that allows you to research the fees and expenses of your investments. The great part about the site is that, in addition to information pertaining to your funds, it also contains the category average for your investment. This lets you evaluate the strengths and trouble spots for your investment options.

To navigate the site, simply enter the ticker symbol in the box on the right side of the screen that says, “get profile for.” Once you’re on the fund profile page, you can also use the site to research past performance, holdings, risk, and purchase information.

Let’s discuss what you should focus on to research and analyze your investments:

Profile: This determines where the fund falls in the “Morningstar Style Box,” and will help you to determine how the fund fits into your asset allocation. You can also review the fees and expenses of the fund. (Aim for lower!).

You also want to avoid paying commissions. Look out for 12b-1 fees, front end sales load, deferred sales load.

You should make a point to review the “annual holdings turnover.” Remember, buy and hold is the name of the investing game. A low turnover ratio is goo  and can be an indicator of lower expenses. The exception to that rule is small and international investments, as they typically have high turnover.

Risk: The following statistics are of importance here:

  • Alpha is the measure of risk adjusted performance – positive is good.
  • Beta is the risk in relation to the market; usually in relation to the S&P 500.
  • R-squared is the percentage of an investment’s movements that are explained by movements in the index.

Performance: A great way to determine if you can handle the risk of a fund is to review the Best/Worst 1-year and 3-year returns. This is what we describe as true gut check.

You can also review the “annual total return (%) history” to see how the fund has performed in the past, compared to the category average.

Step Five: Check Beneficiaries

It is very important that you review the beneficiaries that you designated on your retirement plan, as it will protect your loved ones should something happen to you. There are huge tax advantages to having your assets pass through beneficiary designation as opposed to your Will.

(Speak with a trusted CPA for more information on tax advantages and why they matter.)

You should name contingent beneficiaries as well. To ensure that all branches of your family receive their share of assets, you can add “per stirpes” to your beneficiary designations. This means that, in the event one of your children passes away before you, your grandchildren will inherit what you originally intended for your child.

If anything has changed in your life since you first became employed at your company, you should definitely double-check your beneficiaries.

Stuck In a Bad Plan?

Did you go through these 5 steps and realize your retirement plan wasn’t making the best use of your contributions to maximize your wealth? You should bring your discovery to your employers attention.

The Employee Retirement Income Security Act (ERISA) was put in place to protect employees. From the site:

The primary responsibility of fiduciaries is to run the plan solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses.

If your employer is not taking their fiduciary responsibility seriously, ERISA will hold them accountable.

Make it a point to go through these 5 steps some time this month. You might be surprised at what you find – maybe fees and expenses are seriously eroding your ability to get ahead, or maybe the investments you chose are performing poorly.

In any case, it’s important to stay on top of your retirement fund so you can get the most out of it.

Are you making the most of your retirement savings? Do you feel your current retirement plan is being managed properly?


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