For those of you who may have missed the recent episode of “Last Week Tonight” where John Oliver offers his take on retirement plans, I strongly recommend that you watch it. (Here’s a link: https://youtu.be/gvZSpET11ZY).
It’s worth the 20 minutes. Be warned that there are a few moments of “not safe for work” language, but the message he is getting out needs to be heard by as many people as possible.
His message is one that I strongly believe in. Fees matter. Fees can eat into your wealth and materially affect your retirement income, and you absolutely must find and understand them.
He also offers 5 tips near the end of the video that I pretty much agree with, with a few minor changes below.
1. Start Saving Now. I totally agree. But I would add a target. Try to save at least 10% of your gross income when you first start working, and shoot for 15% to 20% or more as you get settled in your career. This includes the amount of your employer match. If you can’t save 10% or 15%, save as much as you can and try to increase it by a little each year. Every little bit matters.
2. Use low-cost index funds. I largely agree with this too, but I would add that some mutual funds are as low-cost as some ETFs, so make sure to check and compare costs. Morningstar (www.morningstar.com) is a good source of information for this. Not all index funds are the same, and not all index funds are the least expensive options out there. Also, if an active fund does a great job and is still low-cost, I don’t know why you wouldn’t consider it.
3. Ask if your advisor is a fiduciary. I totally agree with this. You need to know how your advisor is compensated and what their conflicts or motivations might be.
4. Shift your allocation more to bonds as you age. This is one where I would say, “it depends”. It really depends on an individual’s situation. If someone has a nice pension and has little or no need to draw on retirement accounts for income as soon as they retire, then it might make sense for them to keep more invested in stocks. In general, the idea of making your portfolio safer as you approach retirement is a sound one – but there can be good reasons to keep a healthy proportion of your investments in stocks. It all depends on your situation.
5. Keep fees under 1%. I agree with this too and would add to it. Keep your ENTIRE fee under 1% – that includes the fee you pay your advisor PLUS the fees on your individual mutual funds or ETFs. There are plenty of ways to accomplish that, so don’t let anyone tell you that it can’t be done.