7 Must-Know’s For Your Retirement Savings


So I figured people like lists (Buzzfeed) and somewhat “dramatic” headlines. I’ll try to deliver on this one so it meets/exceeds expectations.

Below is a list of seven things that everyone should know when saving for their retirement:

1.) You must have a Roth account, IRA or 401k

– There are “traditional” accounts and “Roth” accounts. For starters, “traditional” accounts are pre-tax and you get taxed when you exit a position (or take out money in retirement). To think about this in another way, if you think tax rates will be lower when you retire in 40 years (yuck) than now, traditional IRA/401k’s are a good way to “bet” on that fact. “Roth” accounts, your money is put in post-tax, so your money is taxed at today’s rates, and you’re not taxed when you withdraw money at retirement. So if you think tax rates will be higher when you retire than today, a Roth account is a way to “bet” on that fact. Also, you’re not taxed for short-term and long-term capital gains in a Roth, since it was already taxed money. If you have a Roth, feel free to do more trading that you would in a traditional account. These last two points are why you should have a Roth IRA or 401k.

–  I could go on and on about these two, but for me, what I’ve highlighted above are great pieces of knowledge to chew on. Click here, here, or here if you want educate yourself more on the differences.

Sidenote……. If you have  a pension, well, consider yourself one of the lucky ones left to have one. Pension plans have been dying hard over the last few years.

2. Your Financial Advisor Has a Conflict of Interest Managing Your Money

– So this is a little known fact, which ends up costing you tens of thousands of dollars over the life you saving for your retirement. Your Financial Advisor (“FA”) has certain funds pitched to them by institutions like State Street, Rydex, Vanguard, etc. These funds give them options to help them manage your money. My tip here is whatever fund your FA suggests you put your money in, ask for a list of similar options. The funds that are pitched or sold to them, they usually get a nice payout from these institutions like State Street, etc to sell these funds. So they are essentially getting paid twice when selling these institutions’ ideas, since they already get paid on trades.

3.) Know How Your Advisor Gets Paid

 – As long as we’re talking about it, there are about 6 ways an FA can get paid. Most get paid a few of these ways, and knowing them can help you determine where their conflicts of interests could come into play when selecting your investments.

– FA charges you a percentage of the assets held by them (could range from .5% to 2%, typically)

– Commissions from selling certain products

– A combination of the two above, typically labelled as a “fee-based” advisor

– Hourly rates for financial advice (not as common anymore from what I understand)

– Flat fees for a specific project (such as an initial retirement plan)

– Quarterly or Annual retainer fee for ongoing advice (typically for more “complex” retirement plans and special individuals)

Ask your FA a few questions, doing some investigative work will pay off in the long run.

4.) Know Your Investments and Know Your Options

– As I mentioned in a previous post, there are emerging tools that help you check the investments that you are currently invested in. SigFig will run tests on your investments, and let’s you know 1.) how much you’re losing out on fees charged with your current investments 2.) the amount of returns you missed out on being in a certain fund compared to a better, cheaper fund.

2013-06-30 21_33_19-My Portfolio - SigFig

5.) Stay Up-To-Date on Your Investments

– Along with SigFig are multiple other tools to help you manage not only your investments but all of your finances. Personal Capital is a great tool that monitors your investments, as well as integrates your personal finances, like mortgages, credit cards, bank accounts, etc. Mint.com is another great tool, but is more focused around your personal day-to-day finances.

6.) The Buy and Hold Strategy is Dead

– Ok, so it’s not dead, but you’re severely limiting your returns if you don’t change your investments the entire length of your working career. This is where the FA is helpful. Each year, or every few years, sit down with them to see where you can put new money, or relocate old money. Opportunities are missed for healthier returns if you put your money in and never look at it again  (which I bet is half of America).

7.) Don’t Be Afraid to Switch Financial Advisors, Or Ditch Them Completely

– Bold statement, I know, but two companies Betterment and Wealthfront are looking to make that happen. Each of these sites mimic the process you go through with an FA. To begin each, you answer a handful of questions so you they can assess your risk profile and your current financial situation (if you need regular income, or lots of liquidity in the near-term for a wedding, or whatever). Based on these they give you suggestions and a pre-defined portfolio for you. Wealthfront is gaining tons of traction and currently has +$250 million in assets, which is a fair amount. The best part of Wealthfront is they try and offer you the best funds, in terms of returns and low fees.

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