You Control What Matters Most for Retirement

“I look to the future because that is where I’m going to spend the rest of my life.” – George Burns

Morningstar’s John Rekenthaler had an interesting article recently that discusses what matters most when saving for retirement. He goes over a hypothetical situation where a 42-year old investor is looking at the options for increasing their 401(k) retirement balance in the future and what would have the biggest impact on the ending balance.

There are a number of assumptions including salary, contribution rate, company match, fees, investment returns and the timing of retirement.

Here are the eight options for what would have helped increase the ending retirement balance the most:

1. Start saving earlier
2. Get a higher salary
3. Increase salary by 4% annually rather than 3%
4. Contribution rate: Save/invest 8% annually instead of 6%
5. Company match: Receive a 75% company match instead of 50%
6. Cheaper plan: Switch to Vanguard and pay 0.22% in fund fees rather than 0.72%
7. Better funds: Own funds that gain 8% per year before expenses (instead of the assumed 7%)
8. Retire later: Wait two more years and retire at age 69, not 67

Rekenthaler then went on to run some tests on the numbers to see which of these eight options had the largest percentage increase on the ending retirement balance. Here’s what he came up with:

control

Luckily, the top three options are all within your control. You have the ability to start saving early (or right now), increase the amount you save and increase your time horizon if need be. The other options are not really within your control (although you could try to negotiate a higher salary).

This is great news for investors. It’s easy to blame Wall Street, politicians, taxes and the economy for the state of your finances. These are all easy scapegoats. In reality, there is nothing you can do to change any of these things, so why spend your time worrying about them when you have the ability to control what really matters.

Too often investors get bogged down in the minutiae of trying to choose the best investments, figure out the economic environment, time the market, guess the direction of interest rates and focus on the complexities of the financial markets that are completely out of their control.

This is done to the detriment of your retirement portfolio by forgetting that the simple tasks like saving early & often, increasing the amount you save each year and concentrating on your long-term investment time horizon are your best bets to financial independence.

Taking care of these simple, yet often overlooked aspects of your investments actually get you about three quarters of the way there. Once you make it a priority to save, increase your savings and think long-term, you can focus on keeping your costs low, setting the correct asset allocation that fits within your risk profile & time horizon and automating your investment plan as much as possible to avoid costly behavioral mistakes that the majority of investors succumb to on a regular basis.

After you have all of those things in place, and you are 99% of the way there, feel free to focus on the minutiae that will amount to a drop in the bucket of your overall performance. Otherwise, focus on what you can control and spend time on the things that really matter in your life.

Source:
What Matters Most (Morningstar)

 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Be'en commented on Oct 05

    Well said..

    • Ben commented on Oct 05

      Thank you. Thanks for stopping by.