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Setting Up Your Retirement with the Right Tools

happy couple retirement

This post is a part of #RetireeNextDoor movement, where bloggers are sharing stories and advice from those who have successfully retired. If you enjoy today’s post, please check out the others at Retiree Next Door.

Retirement can seem intimidating to some couples as the choices seem vast. Today I want to review some retirement tools you can use to build your portfolio and I’ll interview Doug Nord, a successful retiree, on how he create a plan that worked for him. This post is designed to get you off just planning for your retirement and into building the retirement plan you two have always wanted.

Retirement Tools to Build Your Portfolio

One of the biggest advantage of getting your retirement started is the amount of choices you have. There are great tax advantaged accounts like 401(k)s and IRAs that give you a chance to stash and grow your money. However, which tools are right for you?

Like much in finances, it depends on your goals and investment styles. While I can’t give you absolute rules for retirement, I can offer information that has helped others make the transition into retirement. MoneyTips recently ran a survey that examined how sucessful retirees reach their goals. One of the questions looked into the retirement tools they used and here’s what they found:
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  • Traditional IRA
  • 401(k)
  • Defined Benefit Plan
  • Roth IRA
  • Tax Sheltered Annuities
  • Rental Properties
  • 403(b)
  • Other
  • Health Savings Account

As you may have noticed, there are quite a bit of different tools to use when saving and investing for retirement. If you’re not familiar with the tools themselves, I’ve included links to more detailed articles on them.

Where Should I Start for Retirement?

Assuming that you’ve gotten out of high interest debt, now’s the time to contribute and grow your money.  As a general rule of thumb, you want to start with the account that will give you the biggest bang for your money. As time passes that advantage snowballs in your favor, another reason for you to start now rather than later.

I’m going to use as an example someone who  works for a company that offers a 401(k) and whose income also allows them to have a Roth IRA. Both accounts can be incredibly powerful when used correctly, but with your contributions limited for now, you want to optimize them. Which do you start off with? Here’s what I would do and why:

  • 401(k) up to the employer’s match
  • Roth IRA up to the year contribution limit
  • Rest into 401(k)

That 401(k) offers you some free money that over time will help you get to your retirement goal quicker. Once you have that match, though, the freedom Roth IRAs and the tax free withdrawals when you retire can offer you is something you can use to your long term benefit. If your employer doesn’t offer a match, then you may want to contribute your money to the Roth IRA’s maximum and then any additional to your 401(k).

If you have a unique situation or you want to bounce ideas with a financial professional, I’d suggest finding a a fee-only, independent financial advisor through an organization such as The National Association of Personal Financial Advisors (NAPFA) to help you come up with a practical and affordable  game-plan.

Who Should I Invest With?

The good news is that there are plenty of options when it comes to opening an IRA. Banks, brokerages, and credit unions typically offer them as a part of their services. Some charge a flat fee for the year, some take a fee for each transaction made, others can take a percentage, and some do all of this.

Our personal choices for our Roth IRAs have been Vanguard and Betterment. Both offer low cost index funds that allows us to passive invest our money and keep expenses much lower than with other providers. It’s an investment strategy that we have looked into and fit our financial philosophy.

Vanguard is known for having great customer service and being a valuable resource when it comes to investing.  I currently use them for my Roth IRA and I’ve been quite happy. Being with Vanguard means I can buy their ETFs free. Since I already buy these it would save me some money. If you’re interested, you can sign up for a new account at Vanguard.

Betterment fits my husband’s investment style -his contributions are automatically invested and re-allocated to make sure he stays on target to the growth plan selected. If you’re interested, you can sign up for a new account at Betterment here.

I definitely like Vanguard and Betterment as places to invest your IRA contributions. They are both some great no hassle, low cost options that make it simple to invest in your future.

Managing All Your Accounts Easily

Now that you have a plan and you’ve sign-up for your contributions, your job is making sure your investments are working for you. If you’re looking for a way to track all of your bank accounts and watch your retirement portfolios, Personal Capital offers a free portfolio check-up.

To me, Personal Capital is like Mint (easy to set up and use), but on steroids (more features).  I believe Mint is more suited for general purposes and Personal Capital is focused on investments and growing your portfolio.  Personal Capital does have cash flow report and there are some wonderfully useful tools that can help you optimize your investments such as a 401(k) fee analyzer and asset allocation examiner.


How to Start Your Retirement and Finish Early

I’m also excited to share how couples can succeed together with their financial goals. Today, I’m proud to share Doug Nordman’s story about retiring early, what tools did they use to invest, and what lessons has he learned and wants to pass on to his daughter and others?

Doug  was kind enough to talk to me this week about how he successfully retired at 41 after serving 20 years in the U.S. Navy. Now he’s helping others plan for early retirement through his blog The Military Guide and book The Military Guide To Financial Independence & Early Retirement (All royalties are donated to military charities including Wounded Warrior).

Doug, when did you start investing for retirement? What retirement accounts did you use and why?

Doug is enjoying his retirement

Doug is enjoying his retirement

When I finished college and started my Navy service, I had very little free time.  I was frugal and kept a tight budget, but I had no idea what to do with the money.  I eventually stumbled across a nice young broker from Paine Webber (whose tag line in 1982 was “Thank You, Paine Webber”) and ended up in a nice bond fund.  Interest rates had just hit a peak so that turned out to be a sensible recommendation, but I had no idea what I was doing and I was paying hefty fees.  This went on for four years until I finished my sea duty, married, and started shore duty.

(Note: The Thrift Savings Plan had been just a recent development, so when Doug retired from the service he only had accrued about 5 months of savings. His wife, who also served, accumulated about 6 years. )

When my spouse and I consolidated our finances in 1986, she had equity mutual funds.  (She’d learned much more about investing from her parents than I had from mine.)  My Dad suggested a copy of Business Week’s annual mutual funds guide and said that he’d been happy with Fidelity.

After a few weeks of phone calls and mailed forms, we were finally with Fidelity and 20th Century (they later became American Century). Back then you paid a 2% sales charge to buy Fidelity mutual funds– and if it was a popular fund then you paid 3%.  But they had great customer service, they were an easy answer, and I had other interests.  Every two weeks I’d write out a few checks and deposit slips, stamp the envelopes, and drop them in the mail.

I’m drawing a military pension now, which includes an annual cost of living adjustment.  We’re still frugal and that pension covers half of our expenses.  We acquired a rental property along the way, and that finally has cash flow.  Because those two assets cover the majority of our spending, the rest of our savings is aggressively invested in equities– over 90%.  (The rest is in a money market and CDs to cover two years of spending for bear markets.)

We have exchange-traded funds in domestic dividend stocks, international dividend stocks, and small-cap value stocks.  We also have a portion of our portfolio in Berkshire Hathaway “B” shares.  There are no more sales charges, of course, and our overall portfolio expense ratio is about 0.23%.

What were some of your biggest challenges? How did you overcome them?

My biggest obstacle back then was ignorance– I’d never been raised with investing skills and I didn’t really take the time to learn them until the 1990s.  If I was starting over today then I’d read about investing from books like the Boglehead Guides or Rick Ferri or William Bernstein.

As parents, what knowledge have you passed to your daughter?

Our daughter just finished college in May and started her own Navy career.  She has no free time either but as you can imagine, she’s had quite a bit of investing education during her life.  She’s turned out to be at least as frugal as her parents, and she keeps a budget too.  However she started out with the military’s Thrift Savings Plan, which has expenses as low as 0.02% (lower than Vanguard).
She maximizes her contributions to that and then maximizes her contributions to her Roth IRA.  That’s invested in Fidelity’s Spartan index funds– the U.S. extended market index, an international fund, and a dividend fund.  She’s investing even more of her money in taxable accounts with Fidelity in the same funds.  She’s set up all of this online and it’s automatically deducted from her pay (and her checking account).
She knows that if she wants to be financially independent in her 40s then she needs to save at least 40% of her gross pay for 15-20 years.  She’s set up her budget, chosen her asset allocation in passive index funds, and put all of the decisions in autopilot.
She knows that every year she’ll try to maximize her TSP and IRA contributions and then do the rest of her savings in taxable accounts.  Her biggest decisions will be remembering to boost her contributions whenever she gets a pay raise, and to occasionally rebalance.
(Doug and I wholeheartedly agree that automating your contributions makes things so much easier and can help you stay on track for your retirement.)
When she becomes part of a couple, she already understands the basic investing concepts.  If she wants more then I’d point her toward the books & websites.  We’d spend more of our time talking about investor behavioral psychology, too.  But I think most of our time will be spent showing her (them) how to sort through all the information to arrive at a few choices, make a decision, and automate it.

Thoughts on Retiring as a Couple

I hope Doug’s story and tips help you two to create a retirement plan that you want. As Doug showed, you don’t have to have a perfect building to finish early. You just have to get started and be willing to learn as you go.

I’d love to hear about your progress so far, whether you’re new or a long time reader. How far along are the two of you with retirement?

Keeping Tabs on Our Retirement Accounts

Over the last few years as we’ve been working together and I’ve been sharing our progress on Couple Money, you may have noticed a few constant themes coming across in several posts, two of them being automate your finances when possible and save for retirement.

I think that one of the most helpful things we have done as a couple is creating a financial system that basically takes care of the essentials so we are freed up to  spend more time on people and activities that matter to us. As working parents, we would honestly rather do other things than looking over everything continually.

Stressing over finances can take a toll any family, so automating our finances is both a way to reduce needless noise and build our net worth. Our retirement accounts are pretty much on autopilot and it has made things much easier to manage.  For those interested in looking under the hood, I want to share what we use.

Set It and Forget It

I know everyone is different, so what works for us may not work for you. There are some people who love to constantly track every peak and valley of the market, getting alerts on all the news of the day.

Neither of us are like that.

We are the type who have no problem reading books, articles, and talking with others to come up with an investing plan. From there we want to be able to have automated contributions based on our plan and have access to check on our accounts as needed (which is hopefully once a quarter).

When we were devising our plans for the 401(k) and the Roth IRAs, we were looking at passive investing and in particular index funds. My husband’s job offers a match with their 401(k) so we made sure to max his contributions to take advantage of  this wonderful benefit. The down side is the 401(k) has limited options, so we choose a few solid funds.

With the Roth IRAs, we have a bit more freedom so we are able to get the accounts to our desired asset allocation. In general, I based mine on David Swensen’s model.  The general asset allocation Swensen recommends includes:

  • Domestic Equity (30 percent)
  • Real Estate Investment Trusts (20 percent)
  • Foreign Developed Equity (15 percent)
  • U.S. Treasury Notes and Bonds (15 percent)
  • Emerging Market Equity (5 percent)
  • U.S. Treasury Inflation-Protection Securities (TIPS) (15 percent)

Since I have decades before I expect to draw money from this account, I don’t really have much in the way of bonds and the more conservative investments so I have a bit more in foreign developed equity than in treasury bonds.

investing for future

Using Vanguard and Betterment for Our Roth IRAs

I’ve written the process of open an IRA with both Betterment and Vanguard so if you are thinking about using either please check out my reviews. I highly recommend both companies as we’ve been happy with both their services. So far we haven’t had any problems, which has made investing that much easier. Both of these companies suit our personalities and allow us to painlessly sock away money.

Betterment is great for my husband as everything is automated for him, including rebalancing his portfolio. For those just starting out or with low balances, you may want to try Betterment as most of Vanguards fund have a minimum of $3,000 (the big exception are their target funds).

I love Vanguard because they have numerous funds that have low fees, meaning more of your money goes towards growing for your benefit. They also are considered the leader in their field, offering a ton of resources and research on investing.

Either one you choose, you can easily grow your portfolio by signing up for automated contributions. If you’re interested, you can sign up for a new account at Betterment * here or Vanguard here. It will probably take you 20 minutes to set up and open.

 Thoughts on Setting Up Your Retirement Portfolio

Like I mentioned earlier, what works for us may not be your cup of tea so I’d like to know how you two manage your retirement accounts? How did you set it up? What companies do you use? How often do you check your accounts?

Disclaimer – I am an affiliate of Betterment. 

Photo Credits: Behavior Gap and Chris Potter

How Much Money Do You Need to Retire?

I usually reserve my book and financial reviews for my other site, but I just finished reading Todd Tresidder’s book aptly named How Much Money Do I Need to Retire and I feel like it deserves a special mention as there are many Couple Money readers asking that question.

I’ve written how I had gotten a ballpark figure before, using financial calculators and basing assumptions on averages and historical data. I still believe it’s better to have some goal for how much to save than to just go without a plan. However if you can get smarter with your target number, than go for it.

How Much Do You Need with Conventional Retirement Planning?

What makes Todd’s book a resource is how he doesn’t give a one size fits all solution. He takes you step by step on how you can build a nest egg that fits your particular needs and situation. To give you an idea of wealth of information he shares, I’ll highlight just a few questions tackled in the first section where he explains how conventional retirement planning works.retirement book review

  • How much income do I need for retirement? While the traditional rule of the says that you should plan for around 75% of your current income, Todd shows that it’s more practical to look at your expenses and make a reasonable ballpark figure as to what you will need. He references studies where most categories see a significant decrease with the exception of health insurance.
  • How does inflation impact the amount of money I need for retirement? Todd gives some compelling reasons why you shouldn’t just assume the standard 3% rate and instead stress test your savings requirement.
  • How does life expectancy impact the amount of money I need to retire? While actuary tables are useful for insurance companies, Todd explains why they aren’t valid for you and your retirement.
  • How much will my company pension and social security pay during retirement? While those closer to retirement may want to factor in their pension and retirements, Todd goes into why you can’t treat them as secure solutions.

What I appreciate is that Todd pulls no punches with these questions and more. He shares the math and studies relevant to each question. You are encourage to run the numbers yourself and decide whether or not conventional retirement planning suits your needs.

From here, the second section covers creative retirement planning. Todd goes over how you can adjust and tweak your current lifestyle and assumptions based on scenario analysis. He gives some practical advice on how you can turn activities and hobbies that you enjoy into income streams that you can utilize when you retire. For couples approaching their retirement and are looking to shore up their finances, this section is for you.

The last section gives the cash flow model, which Todd used himself and allowed him to ‘retire’ (be financially independent) at 35. He crafted a three rule system handles inflation and life expectancy plus gives you diversified sources of income.

I can say that going through the questions he asked, I feel more prepared and knowledgeable. Instead of being focused on that ‘magic’ number, I have a doable plan that would work for us. If you two are looking for a retirement planning resource, I highly recommend Todd’s book. It is packed with information without getting too dry or long winded.

Autographed Book Giveaway!

I had the pleasure of chatting with  Mr. Tresidder last month in St. Louis and I attended one of his sessions. Not only is he extremely knowledgeable about investing, he is also a genuinely concerned about helping others get their retirement plan squared away.

He was kind enough to offer a couple pf autographed copies of his book and I’m giving them away on both my sites – one for a Couple Money and one for My Financial Reviews. It’s simple to enter; I just want you to share your biggest retirement question by November 30, 2013. I’ll pick a winner December 1, 2013.

There are several ways you can submit it:

  • Facebook: Go to Couple Money’s page and leave it as a comment.
  • Twitter: Tweet it out to me (please use  @Elle_CM so I can see it).
  • Email: Send it to elle AT

Once you do, just leave a comment below so I can record your entry in my handy dandy spreadsheet ;) As always, I want to say thank you for reading and sharing your thoughts on Couple Money.

How Much Do You Need to Retire?

How many of you are looking at optimize your retirement plans now? How are you handling your portfolio now? What are some of your biggest concerns?

Playing Catch-Up on Retirement Savings

One of my favorite things about being a personal finance blogger is getting to discover and read some great books. This week I want to share some wonderful stories and experiences I read from Clark Howard’s new book, Living Large for the Long Haul.

In it he shares the stories of over 50 different people from all socio-economic backgrounds who have improved their finances even through The Great Recession.  Included among the numerous stories are couples, young and old, who are working together to get out of debt, build their wealth, and invest in their futures.

Catching Up on Investing for Retirement

While I’ve mention before the importance of getting an early start with investing for retirement, even starting with small amounts for your initial investments, the reality is there are many couples who are behind on what they need to save. The good news is with some team effort, you two can get yourselves on the right track.

Mike Pollard and his wife are working hard at saving for retirement. Mike is 50 and had just $30,000 in his portfolio, much lower than what he needs to have if he wants to retire at 65. Most people would be so discouraged that they don’t even bother to fix the problem while others would simply be in denial and just hope that their Social Security income will be enough when they retire. That’s not the Pollards style.

Mike has bumped up his retirement savings to 14% of his income and his wife is setting aside of her income. In addition to their savings, they are also taking advantage of their employer’s match program, giving them a dollar for dollar match for the first 4% they put into their accounts.

Working as a Couple for Retirement

What if you’re in the same boat as Mike and his wife? While not an ideal situation to be in, you two can still ramp up your contributions between now and when you retire.

  • Check your employer’s plans. Employer sponsored plans like 401(k) can be a fantastic tool for building your retirement plans. One benefit of saving in a 401(k) is that your contributions are tax deferred.  That means that you lower your taxable income now while investments grow for retirement later. Some employer’s also offer a match for your contributions, making a good deal even better.
  • Max out contributions if possible.  Right now if you’re 50 or older, you can contribute up to $23,000 each year (per person) in a 401(k), 403(b) or Thrift savings Plan and $6,500 for an IRA (though there are income eligibility requirements with IRAs).  even if you can’t max out your accounts, putting away something is much better than nothing.
  • Automate your contributions. The easiest way to stay on target for your investment goals is to go ahead and automate your IRA contributions. It has certainly helped me avoid skipping deposits.
  • Increase your contributions every six months. Twice a year look at your budget and see if you can tweak your budget to boost your contributions. A little goes a long way.

I definitely like Vanguard and Betterment as places to invest your IRA contributions. They are both some great no hassle, low cost options that make it simple to invest in your future.

Thoughts on Jump-starting Your Retirement Investing

I’d like to hear your take on investing and where to begin. How have you started with your investing? What was the most difficult step in setting it up? Was it easier or harder than you expected?

Personal Capital Review

Photo Credit: Behavior Gap

Rolling Over My Retirement Accounts Into Vanguard

Whether you two are new to investing or you’re looking to optimize your current investment plans, I hope this week’s articles help both of you build your family’s net worth. Like I mentioned Monday, we’re getting our retirement system optimized and that included opening a retirement account in 20 minutes with Betterment. It was easy to set it up for my husband and now he has a Roth IRA that is simple to maintain.

Now it’s my turn with getting my retirement accounts squared away. I’m moving all of my accounts to Vanguard. The best part? It took less than 30 minutes to get it done.

Why Rolling Over Can Help You Build Your Portfolio

There are two basic reasons that make rolling over your retirement money a financially smart move.

  • More Choices: One complaint some people have with 401(k) is that they can only choose what is available in the employer plan. On top of that the few options you have aren’t doing so well. Opening an IRA gives you more freedom in what you can invest in.
  • Lower Costs: Reviewing my husband’s 401(k) plans, I’ve noticed that the mutual funds selected aren’t the cheapest. They are actively managed and have fees associated with purchasing them. Having an IRA can allow you to find lower cost funds.

I’ve seem people move their money to also consolidate their account, but usually it’s simply cutting down accounts and using the best one they currently have.

Why Vanguard?

With all the companies out there why did I go with Vanguard? I like Vanguard for a few reasons:

  • Save Money: Being with Vanguard means I can buy their ETFs free. Since I already buy these it would save me some money. If you register for e-delivery of account documents, Vanguard won’t charge you an annual account service fee.
  • Solid Reputation: Vanguard is known for having great customer service and being a valuable resource when it comes to investing. They offer investing advice in an understandable language.

Vanguard is the name you associate with low cost index investing. Why should you care what your mutual fund fees are? According to MorningStar, the low cost funds have on average beat higher cost managed funds.

Vanguard gives you a lot of freedom when it comes to picking out your individual funds (provided you meet the minimum investment) and ETFs. With Betterment you can set your account allocation up and let them follow your plan automatically. Vanguard is a bit more maintenance  but they have some tremendous low cost options. Since I like to be a bit more involved with my investments, I went with Vanguard and he’s enjoying Betterment.

Moving My Retirement Account to Vanguard

Rolling over my retirement accounts was simple. Basically if you want to speed the process up, just have this  information ready.

  • Personal information (full name, address, SSI#,work status, etc)
  • Current retirement/brokerage information (name, account number, and account balance)
  • Beneficiaries (Just have the full name and date of birth of the people you want to name)

Afterwards I had to verify my identification with a couple of questions. Like Betterment the the process was fairly straightforward  I had the additional step of printing, signing, and mailing over transfer papers. The whole process took about 20 or so minutes as I had to find some contact and account numbers. According to Vanguard’s site, the process takes about 2 weeks to complete. When all the accounts move over, I’ll update this post so you can get an idea of what to expect.

But that’s it – moving your old retirement accounts, whether it’s a 401(k) or an IRA is a cinch.

Thoughts on Rolling Over Your Retirement Accounts

I definitely like Vanguard and Betterment as places to invest your IRA contributions. They are both some great no hassle, low cost options that make it simple to invest in your future.