Wealth Management Blog | WrapManager | Saving for Retirement (2)

The Pros and Cons of Target Date Funds in Retirement Planning

Posted by Seton McAndrews | CFP®, Vice President Investments

February 28, 2018

The Pros and Cons of Target Date Funds in Retirement Planning

Target date funds have been around for over 20 years, but over the last several years they have seemingly become a mainstay of 401(k) plans. For novice investors and those just starting out, the ‘target date’ feature of choosing a retirement date and “setting and forgetting” an investment strategy has understandable appeal. But for investors with larger amounts of assets under management and more complex financial situations and retirement needs, target date funds may not do the trick.

Below we’ll explore some of the positive features and drawbacks of target date funds.

A New Era of 401(k) Millionaires

January 10, 2018

Fidelity Investments recently produced research that unveiled a surging population of 401(k) millionaires: women. According to Fidelity’s findings, the share of women who have accumulated $1 million or more in retirement plans has doubled over the last 12 years (based on data from 15 million retirement plan participants in Fidelity 401(k) accounts). As of the end of September 2017, about 20% of Fidelity’s 401(k) millionaires were women, which is up from less than 10% in the same period in 2005. What does it take to grow a 401(k) to $1 million and above? Many things, but if we were to narrow it to just three, it would be: consistent saving, smart investing, and time. The women in Fidelity’s research have leveraged all three to become millionaires. [+] Read More

The Retirement Question Advisors Forget to Ask

November 29, 2017

Investor education materials focused on retirement planning tend to try and answer the essential questions: how do you get yourself retirement-ready from a savings and investment standpoint? And, when are you planning to retire? These are the critical questions that define everything from how much you defer to your company retirement plan to how you structure your portfolio. In short, digging into these questions creates a solid foundation for retirement planning. But the question missing from this foundation is arguably just as critical to the planning process, yet it often gets left out. That question is: Where do you plan on retiring? [+] Read More

Traditional vs Roth IRA Strategies: Doug’s Quiz Corner

October 20, 2017

Quizmaster, Doug Hutchinson, presents his quiz for the month. Here, Doug compares traditional IRA versus Roth IRA contribution strategies. Consider this Scenario: Your friend Max would like to contribute money to a retirement account and he is determining whether to contribute to a traditional IRA or a Roth IRA. Assume Max is eligible to contribute to either of these options. Max has a current income tax rate of 25% and he expects to face an income tax rate of 25% after he retires. [+] Read More

When it Comes to Retirement Planning, What’s the Difference Between Needs and Wants?

June 14, 2017

Retirement planning involves more than just saving money in a 401(k) or putting away cash in IRAs here and there. An investor has to consider many other factors: living expenses and cash flow needs throughout one’s lifetime (as well as a spouse’s lifetime, if applicable), health care spending and how that can change over time, Social Security timing decisions, estate planning, and tax strategies. It can be a lot of work. When it comes to planning for living expenses and cash flow needs (spending), one beneficial exercise can be to categorize your assets/goals into 'needs,' 'wants,' and 'legacy' items. The next step would be to think about how your retirement plan can be used to fund each category, starting with your needs first. [+] Read More

Investor Psychology: Why You May Not Be Your Own Best Financial Planner

May 24, 2017

Dr. Meir Statman is a professor of finance (with a focus on behavioral finance) at Santa Clara University. You might say he is a foremost expert on how emotions can affect financial decision-making for managers and investors. His most recent book, “Finance for Normal People: How Investors and Markets Behave,” is pretty much a dead giveaway for where his life’s work is focused. So, when Dr. Statman pens an article in the Wall St. Journal titled, “How Emotions Get in the Way of Smart Investing,” it is probably worth a close look. Indeed, the relationship between human emotions and investing is a complicated one – and it’s one that many experts would agree is at odds. Few would disagree with this general idea: investors who can remove emotion from the investing equation have a better chance of doing well over time versus those who cannot. As Warren Buffet succinctly puts it, “it’s an easy game if you can control your emotions.” [+] Read More

What's the Difference Between a Roth and Traditional IRA?

April 18, 2017

Both a Roth IRA and Traditional IRA (Individual Retirement Account) can potentially help meet your retirement savings goals. The main difference between the two is: with a Roth IRA, taxes are paid upfront, whereas contributions to a Traditional IRA are made “pre-tax,” and reduce taxable income for the year. Age and income are two significant factors to consider when choosing a Roth or Traditional IRA. Couples or individuals in a low tax bracket as well as younger people may be better off with a Roth. Earnings grow tax-free, and contributions can be withdrawn at any time without penalty. Individuals or couples in a higher tax bracket may choose a Traditional IRA to reduce their taxable income, or because their income is too high to qualify for a Roth. A Traditional IRA is also a good choice for people who expect to be in a lower tax bracket during retirement. [+] Read More

How Will Rising Interest Rates Affect Your Investment Portfolio?

March 30, 2017

On March 15, the Federal Reserve raised interest rates for the first time in 2017. Federal Reserve Chairman Janet Yellen moved the benchmark interest rate a quarter percentage point higher, to a range of 0.75% to 1%, and the Fed indicated that the market could expect two more rate increases this year.1 So what does this all mean for you? The answer depends on whether you look at it from a standpoint of being a borrower, a saver, or an investor. Later in this post, we’ll take a look at all three scenarios. But first, here’s a bit of background as to what an interest rate increase actually is, and why they occur. [+] Read More

The Retirement Dilemma for High Income Earners

March 28, 2017

High income earners often find themselves in a bit of a quandary when it comes to retirement planning. Individuals making over $132,000 and married couples making over $194,000 are not eligible to contribute to a Roth IRA.1 For 401(k)s, the annual contribution limit of $18,000 ($24,000 for those over 50)2 is simply not enough for someone who made, say, $250,000 per year during their working years. Saving $18,000 a year is probably not sufficient for someone at that income level to maintain the same standard of living in retirement. Of course, this does not mean that high income earners should shy away from contributing to 401(k)s or other employer-sponsored retirement plans. The more a person can contribute to a tax-deferred plan, the better. But for high income earners, saving enough so that you can replace your income in retirement means turning to other methods and savings vehicles to reach your goals. Here are three potential options. [+] Read More

Savings Checkpoint! How to Know if You’re Saving Enough

March 15, 2017

Retirement and financial planning can essentially be broken down into three phases: Saving Investment Distribution (Retirement Income) For many people, that means spending our working years making an income to provide for our families and to save for retirement. We then invest our savings in hopes of achieving a rate of return over time, to grow the assets and provide for our retirement. And finally, we devise strategies to generate retirement income from our savings. [+] Read More