In Retirement Planning, Knowledge Trumps Confidence

Elevating your head above your gut

Scott Holsopple

In my industry, we do a lot of measuring.

Of course, that’s a good thing because we need to know whether the retirement planning industry is helping investors move toward their retirement goals. That being said, some measurements are more valuable than others.

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For example, take surveys that ask employers whether they feel their employees are prepared for retirement. I’d prefer to know how plan participants are doing—to know whether retirement investors are on track to meet retirement goals.

Likewise, there are participant surveys that measure investors’ confidence in retirement readiness. How confident are you that you’ll have the retirement you envision? I’d rather know how close you are, numerically, to your retirement goals. There are countless examples of people throughout history who’ve felt confident only to return poor results.

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What can you do to move beyond confidence and into the realm of knowing you’re on track?

Engage in your employer-sponsored retirement plan. Know how much you’re contributing and how much your employer is contributing. Pay attention to your monthly statements, your annual investment returns, your plan investing options, and your plan’s other benefits, like advice and tools. Create a retirement savings goal based on your retirement plans and your investing profile. Map your entire retirement savings strategy. Include everything. Things to consider include:

  • How much do you contribute to your employer-sponsored plan now? And how much do you plan to increase your contributions over time? Does your employer contribute to your plan now, and will that change in the future?
  • Do you have other retirement investments? You may have a pension or self-directed plan from a former employer, an IRA and/or an annuity.
  • What are your assets and debts, and how will those change in value over time? Do you plan to sell assets to pay for retirement? If so, is the asset value predictable? Do you plan to eliminate debts before your retire? If so, do you have a plan in place to accomplish that?
  • Do you expect to receive any form of inheritance or life insurance benefit? If so, how do you plan to use or invest that money?
  • Do you have other securities investments you plan to use in paying for retirement? Since those investments will be subject to capital gains taxes—unlike retirement plans and retirement annuities—be certain you account for those taxes.
  • If you have a spouse or partner, include his/her investments and assets in your planning.
  • Know your investor type and use this knowledge as you illustrate your investing future. If you’re investing appropriately for your risk tolerance, your investing timeline, your personal preferences, and current economic conditions, then you should have an asset class allocation. Your allocation will fall somewhere on a spectrum, with very aggressive on one end and very conservative on the other end. If your investor type is fairly conservative, for example, you can’t make retirement plans based on high investment returns.

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    There are few guarantees in life. You can’t know, with certainty, how your life and the world will look at the time of your retirement. Your investments, the tax code, your health, your marriage, the state of social security, economic tides, and even your retirement dreams—none of these is guaranteed. The best you can do is determine whether you’re on track to meet your goals as of this moment. And the best we, the retirement planning industry, can do is provide tools for you to track your progress.

    There are free tools available online. And your plan provider or administrator may have resources, so ask about them. If nothing is available, request to have access to a comprehensive retirement planning calculator.

    Since knowing is better than feeling, seek expert advice if you don’t feel confident in what you know. A retirement investing adviser should be able to help you track your progress.

    Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal. Keep tabs on Scott on Twitter and Facebook.