A Retirement Fix for Almost Everyone

By Mark Folgmann

Just about everyone can enjoy a successful retirement with three upgrades. Upgrade number one; increase your savings rate by 3% within your 401(k) or retirement plan. Make sure this is 3% of your total household income. You can accomplish this without pain by bumping your savings rate 1% each and every birthday till you reach 10%. The average person is saving about 7% into their retirement plan and this will get you to 10% plus any company matching. Upgrade number two; increase your expected returns on your portfolio by 3% per year. You can accomplish this by paying attention to cost and creating portfolios that have an expected rate of return 8-9% per year. About half of the 3% increase could be driven by cost reduction in most plans we see in the marketplace. The other half comes from the elimination of bad investment behavior. If you have done your homework and feel comfortable managing your own portfolios make sure you also rebalance on your birthday each year when you increase your savings rate. Most employees we talk to aren’t confident managing their portfolios so this is a service we provide on the 401(k) s we provide oversight. Statistics show that the average employee averages less than 5% per year after fees and expenses on their account. These first two upgrades will fix over sixty percent of the retirement scenarios. Remember these changes should be made on all household income; if you have two people employed you must figure out how to implement these suggestions on both incomes even if you only have one retirement plan available through your employers. If this is the case you may need to fund an IRA or Roth IRA on the side or fund the available 401(k) at twice the rate. If you are still coming up short in retirement income after you make the above changes you must consider upgrade number three which is work 3-5 years longer than planned. This really should not be a tough call since retirement was never intended to last 25 plus years. The clients I have worked with over the years that have stayed productive well into their late 60s or even 70s have been the ones I’ve enjoyed being around the most. Since they are productive and active both mentally and physically they energize the people around them with stimulating conversations about the new and exciting things they are accomplishing. If your profession does not allow for an extra 3-5 years of employment you must start preparing for this transition at least 5 years prior to leaving your current employment. You might turn a hobby into an income or become a consultant in an area where you have specialized knowledge. Either way the extra years working will enhance your retirement years by saving more and spending less while you continue to work. These three upgrades will not solve the problem for everyone but will get over eighty percent of American workers into a position where they can retire with dignity and independence.