Answers to 3 Common Retirement Questions

People ask me retirement questions all the time. They catch me at events, comment on my social media feeds, and stop me in the hallways. You might have questions, too. Here are a few I hear often:

Why should I pay an advisor a commission when I can invest in the same things on my own for free?

That’s a great question! If you chose the same investments as an advisor, and if you kept the investments for the same length of time an advisor would, you could match the advisor’s returns and save on the commission. But those are two big assumptions! What are the chances you’d pick the exact same investments? And when you go it alone, you’re more likely to make decisions based on emotion—like bailing out when the market dips. Those two assumptions could cost you a lot of money.

DALBAR, an investor behavior research group, found that solo investors earn 4.6% less in the long term than stocks in the S&P 500. That doesn’t sound like a big deal, but over 30 years, that 4.6% means the difference between $1.1 million at retirement and $525,000 at retirement (hello, compound interest). If I were you, I’d pay the commission up front and earn myself an extra $500,000!

What if I’m behind where I need to be for my age group? Should I take even more risk? Should I give up hope and plan on working for the rest of my life?

Don’t give up! Don’t ever, ever, ever give up! It’s never too late to buckle down and get serious about retirement. You can still put enough money away to enjoy retirement without having to increase financial risk. However, you’ll need to make sacrifices and stay disciplined. That means scaling back your lifestyle (satellite TV, expensive car payments, gourmet coffees, eating out, etc.) and possibly working a second job until you catch up. But you can reach your retirement goal.

If you’re already 50 or older and haven’t started saving, you’ll need to adjust your expectations. For example, you’ll need to work longer than you thought. If you don’t retire until age 70, you’ll qualify for more Social Security benefits than if you retire at 67. You’ll need to consider selling your home and using that money to buy a smaller place and to invest. When you invest, take advantage of catch-up contributions. Because you’re older, the IRS says you can contribute more to your investments.

Remember, sacrifice now means payoff later. You can’t keep doing the same things you’ve been doing and expect to be prepared for retirement. Your behavior has to change. Before you make any decisions, though, talk to a financial advisor. Those guys are pros and can give you specific advice based on your situation.

What are some real options for me to boost my retirement savings?

The best way to boost your retirement savings is to take advantage of every opportunity to put away more money when you can. Here are a few ideas:

Get out of debt. Interest you pay is a penalty, like the interest you pay on a car loan. Interest you earn, like a return on an investment, is a reward! Get allergic to debt and pay it off as fast as you can. It’s retirement quicksand. Imagine how much money you could put toward retirement if you weren’t giving Visa your money!

Use company matching. In many retirement plans offered by employers, the company will match a percentage of employees’ contributions—usually 1–3% of your annual salary. If you only contribute 2% of your salary, you’re missing out on free money. For example, if you earn $50,000 a year and your company offers a 3% match, that 1% of the match you didn’t get would be an extra $500 in your account per year. If invested for 30 years, that 1% would earn you $90,000. That’s some serious cash!

Take advantage of raises. Every time you get a raise, increase your contributions to your 401(k). If you get $50 extra a month, put that $50 toward retirement. Over time, those raises can make a huge difference in your retirement fund. Keeping your lifestyle modest now will allow you to enjoy that dream retirement later!

Keep fees in check. Investing involves fees for transactions and account maintenance, but they don’t have to fleece you. Ask about all fees in connection with your investment portfolio and how often they’re charged. The higher the fees, the less you have in your retirement fund. If your investment advisor won’t tell you how much they’re charging, work with someone who will.

For more answers to your questions about retirement, check out additional content on my site!

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