“A golfer has to train his swing on the practice tee, and then trust it on the course.” – Dr. Bob Rotella

Did you ever get the feeling that your actively managed investments aren’t performing better than the fees being charged to you?  Many people have passive mutual funds or etf’s in their 401(k) plan at work that beat the investing done by professionals.  Why is this?  Higher fees and lower performance of course.  Some of these active managers are so complex they fail to perform.  According to a paper from Queens College in Ontario, Canada 42.5% of U.S. domestic stock funds have used leverage, short sales or options at least once during the past 17 years.  The portion that use all three has risen from 25.7% in 1999 to 62.6% in 2015.  In theory, those investments can allow funds to increase returns and/or reduce risk.  In practice, the opposite seems to be true.

In my view, this study misses the point with regards to securing our financial future.  Which is this: people need to take control of their spending habits and the way they view money.  Forget about getting into a high flying stock like SNAP in order to catch up from all those years we wasted our money on cars, clothes, home furnishings etc.  Forget about flipping houses as the net gain seldom exceeds the time and money put in.  The onus is on us to aggressively save for our future rather than go all in on a risky investment that most likely will not come to fruition.

If you had the chance to double—or even quadruple—your retirement savings, you’d probably be ready to grab hold of that opportunity, right?

Well, there’s one simple change you can make today that’s sure to boost your retirement savings.

What’s the secret?

An HSBC study of worldwide saving habits (12,000 people in 11 countries) discovered that people who devise a financial plan have more than twice as much in their nest egg than those with no plan at all.

And savers who take it one step further by connecting with a professional to put their plan to paper? Their average nest egg was a whopping 445% bigger than non-planners.

Why is a plan so potent? Because it gives you a clear path to successAnd that’s all many of us need to get with it.  Just do it as Phil Knight so famously says.

So let’s create a plan for your future!

This plan will have three phases, and you can forecast your financial situation for each one today. Think of it the same way you do your budget. You’re making a plan for your money before you actually have it, based on projections for your income and expenses.

It’s important to start with a solid financial foundation, so the first phase begins as soon as you are debt-free and have saved three to six months of expenses in your emergency fund.  Write in on a scratch piece of paper right now, as there are no extra points given by creating a fancy computer spreadsheet or document.

Phase One: Simply Save

In the first phase, you’ll invest 15% of your income in good growth stock mutual funds through tax-advantaged retirement plans such as your employer’s 401(k) and a Roth IRA. It may not sound like much, but if you don’t follow through on this step, you won’t have any savings to make decisions about down the road.  Yes, that means 15% of your cash lessons and bonus money.

Your goal is to consistently invest for retirement as you focus on other financial obligations such as funding college for your kids and buying or paying off your home. A couple with the household median income of $54,000 could have $792,000–1.2 million for retirement after 25 years.  Fifteen percent of $54k in income gets you to retire on time or earlier!

Phase Two: Dig Into the Details

Now it’s time to envision what your retirement will look like by calculating the income your nest egg will bring. This is where a pro comes in handy as there are variables to factor in other than stocks and bonds.

Ideally, you should be able to live off the growth of your savings rather than depleting your nest egg. One of our associates at B P Financial can run projections based on your monthly contributions and expected retirement age, making sure to account for inflation and any taxes or fees that may apply down the road much better than an online algorithm. We always factor a 30% haircut for those of us still working with regards to social security payout.

You should also develop a backup plan in case life throws you a curveball along the way. With careful monitoring and some modest adjustments in years with low returns, you can be confident that your savings will last throughout your retirement.

Phase Three: Retirement Reality

Using your monthly budget, compare your expenses to your retirement savings projections to see where you stand. With an empty nest and a paid-for home, you can plan to ramp up your retirement savings if necessary.  Mint.com is a great source to run a budget.

Based on your forecasts, you can answer several questions: Will you need (or want) to continue working? Will you sell your home? What will you do for fun? What about medical expenses and long-term care?

Remember, too, at age 60, most people will need to purchase long-term care (LTC) insurance if you don’t think you’ll have the roughly $80k per year to buy into a nursing facility down the road.  LTC will protect the money you’ve saved for retirement by helping pay for the expenses of a nursing home or in-home care if you need it. Keep that in mind as you estimate your retirement budget.  An option for this expense may be to use proceeds from your home so purchasing a LTC policy does not always make sense.

While there is no guarantee that a financial plan will make you a millionaire or give you a perpetually rosy outlook, it certainly won’t hurt your chances for a confident future.

Need help? It doesn’t cost a thing to just sit down with one of our associates and discuss your options.

So what are you waiting for? Be confident about your retirement.


Blake Parrish
Senior VP, Portfolio Manager
Phone: (503) 619-7237
E-mail: blake@bpfinancialassoc.com

Certified Financial Planner Boardof Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”