Cove Financial Planning, LLC
Do Well While Doing Good



Saving for Retirement


My wife wants to me run a half-marathon with her. I’m more like a 5k followed by a well-earned beer kind of guy. But… I also want to be supportive, so I agree to consider it. The thought of running a baker’s dozen miles in one straight shot sounds as painful as the thigh chafing that will undoubtedly ensue, but then I remember how many miles are in a marathon (26.2 to be exact), and I figure it could be worse.

I began researching how to prepare for the dreaded half-marathon, and quickly realized that it takes more than running a few laps at the local track a week before the race. I discovered advice on what shoes and clothing to wear, what to eat and drink before, during, and after the race, tips on keeping emotions in check, how to stretch, and training regimens beginning several months before the race. Bottom line: I became paralyzed with all the complexities, and started overthinking the whole process. This, of course, led to indecision, and I have yet to start any formal training. Needless to say, I’ll be cheering my wife on during her summer half marathon…

Investing can be complex, just like properly training for a half marathon. And make no mistake, investing, especially for retirement, IS a marathon. Like with any long-term endeavor, proper preparation can make all the difference. Consider these strategies as you assess your own retirement savings.

Set your Savings on Autopilot

When it comes to your retirement savings strategy, it’s pretty easy to set up direct deposit from your paycheck to go into your 401(k), 403(b), or other employer-sponsored retirement plans. If you haven’t done so, get on it, and at least take advantage of your employer match (see below). Some plans offer a customizable increase in your automatic savings until you max our your annual contributions. I say, shoot for the stars, and if you eventually find your cash flow doesn’t sustain a higher savings rate, then simply decrease your savings. It’s a lot easier to eventually ramp down your savings than it is to ramp it up.

With individual retirement accounts (IRAs), it’s not always as easy automating your savings via direct deposit. I suggest you set up an automatic transfer every month from your checking/savings account wherever deposits from work go. Typically, this is easier to set up wherever your IRA is held - you just need to provide your bank account information, and you can even set up automatic purchases into your investments. Keep in mind, the maximum annual contribution into a Traditional or Roth IRA for 2019 is $6,000 per year ($500 per month) if you’re under 50 years old, and $7,000 (about $583 per month) if you’re over 50. I’ve found a lot of investors under 50 will save $250 bi-weekly to hit their annual maximum.

Take advantage of free money

If you found $20 on the ground, would you pick it up? There aren’t a lot of free lunches out there, but in the case of company matches, that’s free money in your retirement account. Make sure you understand how your company matches your retirement contributions (if they match at all). Most employers will simply match 100% of your personal contribution up to a maximum amount (typically between 3% and 6%), although every plan is different. Hypothetically, if you earn $100,000, and your company matches 5% of your own contribution, you could elect to save 5% ($5,000) of your salary every year, and your company would also save $5,000 into your account. Over the course of 30 years, that’s $150,000 in free money from your employer (or around $505,000 if it’s growing at a rate of 7%!)

It’s important to also understand your company’s retirement plan vesting schedule, which means how long you have to stay employed with them before you can take the matched money and run. Most plans require you to be employed and in good standing for around three years before your are “vested” or able to leave the company and take all the match money. Just know you will always have your own contributions - no one can take that away from you! I left my first company for a new job just a month before I was fully vested, and left a few thousand dollars on the table. Don’t make the same mistake I did!

So let me ask again, if you found $505,000 on the ground would you pick it up?!

Diversify your investments

When you start a new job, there are probably 1,000 things going through your head, the least of which involves how to allocate your retirement account. Don’t rush through selecting the investments in your plan, because investing outside your risk tolerance, or not considering cost, could potentially cost your thousands of dollars (or a deferred retirement). When you choose investments in your retirement plan, consider how they complement investments held outside of your employer plan including your IRA, a taxable investment account, a pension, etc. From a risk management perspective, you should have a holistic strategy for all of your accounts so they’re working in tandem with one another. Also, take some time to learn investing basics along the way.

This is also important when it comes to cost. If certain equity funds in your company retirement plan, for example, cost way more than they would in your IRA held at a discount broker, don’t buy them in your company plan. Many plans offer target-date fund options, which generally become less aggressive, automatically, as you get closer to retirement. These can be an awesome “set and forget” choice, but make sure you look closely at the cost of these funds vs. the cost of building your own allocation. In some cases, you can save considerably on fund expenses by piecing together a personal portfolio instead of buying a single target-date fund.

Consider taxes

Like with most things in life, balance is important when it comes to what types of retirement accounts you’re saving into. Having a mix between tax-deferred, tax-free, and taxable accounts will give you the option of how you want your withdrawals taxed in retirement, while also giving you a tax break while saving throughout your career. The following is a summary of each type of account and a few examples:

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  • Tax-Deferred Accounts: “Pay taxes later”

    • Contributions are made pre-tax (so you get a tax deduction when you save), and withdrawals are taxed as ordinary income

    • Examples: 401(k), 403(b), Traditional IRA, SEP IRA

  • Tax-Free Accounts: “Pay taxes now”

    • Contributions are made after-tax (so no deduction when you save), and withdrawals are not taxed

    • Examples: Roth 401(k), After-tax 401(k), Roth IRA, Health Savings Account (HSA, when used for medical expenses)

  • Taxable Accounts: “Pay taxes as the account grows”

    • Contributions are made after tax (no deduction), and you have to pay taxes when you sell investments and when dividends are received

    • Examples: Taxable Investment Account, Trust

If you are in a top income tax bracket now, you will benefit most from saving more into tax-free accounts. If you expect that you will be in a higher tax bracket in retirement (when you are taking withdrawals), than you are now, then you would benefit most from saving more into tax-deferred accounts.

Like with marathon training, planning ahead can be the difference between breaking records and suffering from an avoidable injury. Saving for retirement is no different. Go into it with your end-goal in mind, manage risk, and save what you can on fund expenses and taxes.

Are you ready to work with a fee-only financial planner to optimize your retirement plan? Reach out to me at or schedule a free consultation call.

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Ben Smith is a Whitefish Bay, WI fee-only financial advisor and CERTIFIED FINANCIAL PLANNER™ (CFP®) Professional serving clients in the greater-Milwaukee, WI area as well as virtually across the country. Cove Financial Planning provides comprehensive financial planning and investment management services to individuals and families, regardless of location, with a focus on Socially Responsible Investing (SRI). Ben acts as a fiduciary for his clients. He does not sell financial products or take commissions. Simply put, Cove Planning sits on your side of the table, and always works in your best interest. Learn more how Cove Planning can help you Do Well While Doing Good!

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Ben Smith, and all rights are reserved. Read the full Disclaimer.

Ben Smith