Financial Model Blog

Retirement Savings - More options than you think

Published June 21st, 2022 by Constantine J Kitrinos, CPFA

It's NOT one or the other

Rid yourself of some or all taxes

Most of our clients and followers already know about certain retirement hacks you should be thinking about in markets like we're facing right now. Even though most of us remember them when we're reminded, it's a topic worth revisiting. You know there are choices in most of your retirement plans at work. You choose to have money held out of your paycheck to invest in the income your future self will use in retirement. We call those retirement plans and they come in all sorts of flavors; 401(k), 403(b), 457, and so on and so forth.


We handle tons of small to mid-sized companies' retirement plans and work with the business owners and sponsors to draft the plan design. There are tons of choices they make for their staff long before any notices go out and the plan goes live. We put a ton of effort into plan design to meet the needs of the employees and customize the chassis. With that being said, our focus is on the pre and post-tax options. Roth options are not right for every single person. You'll want to discuss things with your CPA or accountant to make sure you're making the right choice for your circumstance.

We often get asked how much a person should be saving. Is it a fixed dollar amount, a percentage, and what are 401(k) plans paying these days? First, the amount of savings varies quite a bit depending on your lifestyle, time horizon until retirement, and how much income you'll need when you decide to call it quits. Percentages tend to work out best as they'll adjust based on your earned income versus a flat and stagnant amount that requires you to make changes manually. Above and beyond is to ensure that you're revisiting your deferral percentage each and every year. If you're able to afford it, increase your savings by at least one percent until you max out.


Once you set up your deferrals, you're going to look at savings to defer taxes or square up right now. Making pre-tax elections allows the participant to defer taxes and save towards their retirement goals. That can be a great option for high-income earners who are looking for the reduced tax liability. It's a good choice with an immediate incentive so it has some level of reward you don't have to wait years to realize.


Choosing to pay the taxes now and draw income-tax-free, later on, can be an enticing consideration. You may have to do a bit of guessing when it comes to the impact of the tax benefits. Ask yourself if you see yourself in a tax bracket that's higher or lower in retirement. It's not often that brackets go lower, but it's not that simple. You have to consider how old you'll be when you retire and what your income sources look like. Things like social security, pensions (if you're lucky), non-retirement investments, real estate, or business income.

Our blog title implies that you have more than just pre-tax and post-tax options and that's true. We get this question every now and again, but you are able to choose both if your plan allows. Most of the plans we work with have a Roth component to them and if it's a plan design we're helping clients with, it will allow the participants to make this choice. You could make the choice to save part pre-tax and some post-tax. This choice will give you an immediate benefit with the reduced tax liability today and tax-free distributions when you take money out.


Where does that leave plan participants with respect to their company match or profit-sharing? That's a great question and it often leaves employees confused. Your savings option has no bearing on the company match or profit share. That's right, those employer contributions are always made on a pre-tax basis. It's nothing you can change, but it's good to know because you may think your election to contribute 100% in a Roth 401(k) will leave you a nest egg that's completely income tax-free. That's not the case. Your company's contributions will get taxed down the road. If you're one of the lucky employees that have a company willing and able to help contribute to your retirement plan, embrace it. Be sure you contribute enough to max out the company matching incentive and give yourself that well-deserved raise you've worked hard for.


And that's only the beginning...Reach out and schedule a consultation to discuss your situation. We'll walk you through your options and help you make the right choice for your goals. Click below to take a listen to the latest PennyWise Financial Podcast and hear more commentary on the stuff you need to know, and much more.

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Leave it alone or grab the money and run

What to do with that old retirement plan

You may have just changed jobs and not sure what to do with the old retirement plan your employer offered you. There are a ton of people who forget to take control of these funds and leave them as they are. Is that the best decision for you? There are a ton of things you should be thinking about when making that choice. Keep in mind, doing nothing is actually a decision. It's the conscious choice to keep your money invested in the same way you set them up when you started putting money away. That could be six weeks, six months, or even six years ago. I bet a ton has changed in any of those scenarios. I have yet to find a plan that is perfectly crafted, has the right fund lineup or flexibility to make the most of your money. Even if the plan score is decent, who knows what the investment menu will look like in the next several years. The last thing you want is multiple sites to log into, forget about the account, ignore it and not play an active role in your investment choices. Is it easier to just leave it alone and do nothing? Heck yeah, but easier doesn't always mean better.


One thing a lot of people don't know is all the options they actually have when you change jobs, retire or reach an age when your plan allows for what is called an in-service rollover. Let's take a deeper dive into those options and what you should be considering when you evaluate so you can make the best choice for you. Below are the options laid out:

  • Do nothing

  • Roll funds into your new employer's 401(k)

  • Roll funds into an IRA

  • Cash-out


Keep in mind, making the wrong choice could potentially force you to work years longer than necessary to afford the retirement you've dreamed of.

The downfalls to avoid

You'll want to know what to watch out for if you ever want to get to your retirement goals.

If you truly want to retire as soon as you possibly can, there are a few obvious things to avoid. Investments that don't perform up to expectations, owning the wrong things, and nose-bleed fees. Skipping past those mistakes can help you grow your retirement bank quicker, with more efficiency, and result in a bigger balance when you're ready to start income.

  1. Investments that just don't make the cut - 401(k) and IRA investments fall into two fundamental types – active funds and index funds. Active funds are just that - active. They attempt to outperform a benchmark (e.g., S&P, Dow, etc.) by making active trades in the account to avoid a downturn or to capitalize on an upswing. Index funds will simply try to match an index. Now - there's no clear winner with those basic types of investments, but one that doesn't meet similar funds trying to do the same thing is considered an underperforming investment. Numerous studies have been done to compare the type of management and their performance. The results show most, but NOT all active funds fit the bill.

  2. Wrong things to own – Allocating your money into a diversified portfolio is a strategy that attempts to help with the balancing act. It's the balance between risk and rewards and it can be difficult to do consistently over a long period of time. It may be tempting to jump into the hottest stock sector or style, but having the right amount of balance is important. If you don't maintain discipline and control, you could miss out on gains or fall victim to unrecoverable losses if you're too aggressive.

  3. Fees, fees, fees – Retirement plans like your 401(k), 403(b), 457 and IRA providers charge you fees to administer your account. It's typical for the charges to be deducted on a quarterly or annual basis. Most of the IRA fees are very transparent, easy to find, and something that can be reviewed with your advisor directly. Employer-sponsored plans may be a little less straightforward retirement.


What to look for in Features you actually want These are the things you should focus on to lessen any pitfalls in your retirement plan:

  1. Gains – Although most actively managed funds can fit the bill, some studies show that a passive portfolio may outperform active funds after the fees are deducted. Keep in mind, all funds are NOT created equally and this isn't an idea that passive always better than active or visa-versa. Some of the lowest cost providers are the big names like Vanguard and Schwab which tend you have many good choices. They don't always score at the top of ranks so don't fall in love with any single fund family or manager.

  2. The help you deserve - To make sure you follow a plan, stay focused, remain disciplined, and don't fall victim to making decisions based on fear or greed; get help from an expert. You will want professional investment advice to help you navigate the investment landscape and make decisions with your hard-earned money. The right advisor will help you maintain an appropriate allocation, look for opportunities in various sectors or asset classes and give you peace of mind in uncertain times. Various Vanguard studies have shown an advisor can add an average of 3%+ a year in value by helping to avoid poor investment decisions.

  3. Low, low, fees – It's the admin fees that will lower your investment returns dollar-for-dollar. If there is a plan or platform your advisor can use to keep those admin fees low, the better off you'll be. Despite finding ways to get the most value on those fees, they are inescapable because the providers have costs to provide custody, reporting, technology, etc for your account.


And that's only the beginning...Reach out and schedule a consultation to discuss your situation. We'll walk you through your options and help you make the right choice for your goals.

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Disclaimer: The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by Basch Solutions to provide information on a topic that may be of interest. Basch Solutions is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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