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Making A Simple Retirement Plan

Doug Carey, CFA

There are a lot of basic things that everyone should be doing to save money. You have probably heard these before, but they bear repeating: 

  • Set a target for 401(k) savings--say 10% of salary--and increase it one percentage point annually.
  • Automate that savings, so you that, after a while, you barely notice when it does not show up on your paycheck.
  • Keep fixed living costs (home mortgage, car payments and maintenance, and the like) at less than 50% of income.
  • Don't ever carry a balance on your credit card.

But let's say you're good about all those things and more, but don't know where to put the money. So many stocks, funds, ETF investment options--you can't make sense of it all, and just want a set-it-and-forget-it simple retirement plan.

 Here are a few options to consider: 

Target Date Funds. If you have access to them, so-called target-date retirement funds are a great one-stop option for a lot of people. These funds match your projected retirement date with a gradually changing asset allocation model. You invest in the fund, and the fund company changes the allocation over time. 

For example, Fidelity's Freedom Fund series starts out with about 60% in domestic equities, 30% in international equities, and 10% in bonds for investors who don't plan to retire until roughly 2060. Over time, as the year 2060 approaches, Fidelity modifies that allocation, shrinking the equity portion and increasing the bond portion. And you don't need to do a thing but keep contributing to it--no rebalancing or reallocation needed on the investor's part. 

Large fund companies like Fidelity, Vanguard, and T. Rowe Price offer such funds, and they are often available through 401(k) plans. 

Indexing. You could probably get away with investing in as few as three or four indexed mutual funds or ETFs. (Indexing refers to investing in funds that mimic as close as possible certain stock market indexes). Index funds have very low fees and, while you by definition won't beat the markets, you will only be slightly behind them due to those fees. 

In order of return/risk profile, here are some funds to consider:




Vanguard Total International Stock Index Fund


Vanguard Total Stock Market Index Fund


Vanguard Total Bond Market Index Fund


Vanguard Inflation-Protected Securities Securities Fund



Broadly speaking, as in the case with the target date funds, the earlier you are in your saving years, the higher the percentage that should be in invested in equities (the first two options above), and the closer you get to retirement, the higher the percentage that should be invested in fixed income (the latter two options above). There are a wide range of opinions on what exact percentages are appropriate, and it's partially going to depend on your tolerance for volatility. 

Vanguard is the asset management company best known for its index funds, but there are plenty of companies that offer them. Your 401(k) should have some indexing options available. (And if it doesn't, ask your administrator to add some!) 

Dividend Payers. At some point, most investors will depend on their retirement savings not just to appreciate over time, but to generate income in some way. Individual stock investing isn't for everyone, but for those who are comfortable with the potential for volatility, it's not difficult to assemble a diversified portfolio of consistent dividend-paying stocks (and distribution-making partnerships) that yields 4% or thereabouts. There are a number of companies that historically have paid consistent or growing dividends through all kinds of markets. Some to consider: 




Yield as of 2/12/2016













National Retail Properties



Southern Co



Verizon Communications




I have discussed how building a portfolio of solid dividend payers can help retirement portfolios previously. 

Mixing and Matching. As you get closer to retirement, it may make sense to blend these options, depending (once again) on your tolerance for volatility and your need for income. 

How might increasing your savings rate or making investments in different asset classes affect your simple retirement plan? Could you stomach (and could your simple retirement plan weather) another stretch of stock-market volatility like we saw in 2008? WealthTrace can help you find out. Run various scenarios and see how making changes to various factors affects the probability of your plan succeeding. Use a free trial of our personal financial planning software to find out.

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Doug Carey, CFA