Is Your Retirement Plan on Track?

The New Year is a great time to review your retirement plan, review your prior year progress, and determine any changes or goals for the upcoming year. 

Update Your Assumptions

As you look ahead to the future, your retirement plan should reflect today’s low interest rates and relatively expensive stock prices.  The ten-year US Treasury bond yield is only about 2.4% today and the S&P 500 stock index trades at about 25 times earnings.  This suggests that future investment returns will be well below their longer-term averages and you should assume returns in the 5-6.5% range depending on your investment strategy.  Fortunately, inflation has been low as well so you may be able to factor in a 2-2.5% rate going forward.

Investment Strategy

You do have an investment strategy, right?  You’ll want to look at all of your retirement accounts as a whole to ensure that you have a good overall balance.  The key to your investment returns is the asset allocation of your investments.  If you use a static allocation, then the New Year is a good time to rebalance back to your allocation.  If you are more opportunistic, then look at current valuations and ensure that your allocations reflect your outlook.

Retirement Ahead

Reviewing 2016

Did your portfolio perform to your plan assumptions last year?  You’ll want to review your overall portfolio return versus the benchmark that you use.  You do know that number, right?  If your advisor hasn’t given it to you, along with your benchmark, then it may be time to find an advisor that is more accountable to you.


Unless your strategy is to invest 100% of your retirement plan into US large cap stocks, then the S&P 500 isn’t an appropriate benchmark to use.  Consider a more balanced or blended benchmark such as the return of the average balanced mutual fund.  Morningstar changed their categories last year, but now offers both Target Date and Allocation fund returns.  The average fund in the Allocation 50-70% Equity category, for instance, earned 7.3% for 2016.

Your portfolio doesn’t need to beat the averages every year, but if your returns are consistently below, then you should find a better investment advisor.  According to a study by DALBAR, the average investor has underperformed the benchmarks by over 3% per year.  The average investor probably doesn’t even have a clue how badly they’ve done because they don’t look at their returns and compare them to a benchmark.  Over time this can ruin their chance at a successful retirement income.  You don’t need to consistently beat the benchmarks to succeed, but you do need to significantly outperform the average investor.

Savings Rate

When you’re younger, your savings rate is the most important aspect of your retirement plan.  As you get older, the investment returns on your portfolio become much more important.  For 2016, how much did you save?  Was that enough or do you need to increase it this year to get back on track?

The old 10% savings rule was from a time when most workers had employer sponsored defined benefit pension plans that paid them a percentage of their income after they retired.  Those are long gone for most Americans and have been replaced by a small percentage, often just 3%, that employers add to your 401(k).  You’re likely responsible for your retirement income today so plan ahead and stick to your savings goal.


The tax laws offer some good opportunities for retirement planning, but there are numerous options from IRA’s to 401(k)’s, 403(b)’s, SEP’s and more.  And then there are Roth versions, too.  There are also lower tax rates on capital gains than on interest.  Your plan should factor in the ever-changing tax laws and you may well want some tax diversification in your plans.

Whether you’re 25 or 75, you’ll want to have a plan in place for your future income sources.  Successfully retired Americans didn’t get that way by accident.  It takes a good plan and the diligence to stick with it.  Use the New Year as an opportunity to make the best of your future standard of living.  If you’d like some help, we offer a complimentary initial meeting.

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