Everyone wants to have a successful retirement, but people are often unsure about how to start saving. It can be really complicated to build a successful retirement plan on your own. There are many elements to account for, and you have to consider how they all work together to create the finished product.
In many ways, creating an effective retirement plan is like assembling a piece of furniture. It’s confusing and difficult to make sense of each component if you don’t have instructions that tell you how they all fit together. Maybe there’s a picture on the box that lets you see what the finished product looks like — just as many people can envision a successful retirement — but it doesn’t offer any guidance on how to achieve that end.
There are three main elements to consider when creating a retirement plan:
- How much you’re contributing: Making contributions to a retirement plan is a great first step, but it’s also important to know how much you’re contributing relative to the overall amount you need to save in order to retire by your targeted age.
- How you’re allocated: Once money has been contributed to your account, it doesn’t just sit there. Those funds are invested to build your wealth, so it’s important to understand how that money will be allocated among the investment options available to you. How much risk can you take on? What percentage of your account do you allocate to different investment options? How will those allocation decisions change over time? When you’re younger, it often makes sense to take more risk for potentially greater returns, but you’ll likely want to shift into lower-risk investments as you near retirement.
- Your target retirement age: It’s hard to know the appropriate level of investment risk and how much you need to contribute if you haven’t considered your preferred retirement age. To retire when you want, with adequate retirement income, you have to ensure your contribution rate and allocation decisions line up with when you’ll need to start living off your savings.
It’s impossible to achieve a successful retirement by focusing on just one of these aspects. They are complementary and require a holistic plan. You might be contributing 6% of your income, but that alone doesn’t provide a clear picture of the progress you’re making toward retirement. Maybe 6% is enough if you want to retire at 70, but not at 65. Perhaps 6% is sufficient if you’re allocated more heavily into riskier investments, but not if you’re invested primarily in low-risk, low-return vehicles.
Advisor managed account programs are like an essential instruction booklet, showing you how to piece together the disassembled furniture components. These programs help make sense of each component and how they work together to create that picture-perfect retirement. Here are just a few ways that advisor managed account programs provide needed assistance:
- Assess your personal situation to create an investment plan tailored for you. Everyone is different, so you shouldn’t be stuck with a one-size-fits-all plan. An advisor managed account program will consider your age, salary, account balance, savings rate, employer match, and expected retirement age to determine an investment allocation, glidepath, and savings rate aimed at helping you meet your retirement goals.
- Adjust over time. Life changes, and so should your retirement plan! Maybe you get a raise and want to start contributing more of your income. Or you might want to transition into less-risky investments as you near retirement. With an advisor managed account program, you don’t need to worry about how life changes affect your retirement plan, because the program will adjust your plan – and your allocations – for you automatically.
- Help navigate the trade-off of retirement age vs. contribution amount. What’s more important to you, early retirement or contributing less of your regular income? The answer may be different for everyone, so an advisor managed account program can help you calculate how much money must be saved in order to retire at your desired age. Or if the amount that you can contribute is limited, the program can show you what retirement age – or retirement income level – is possible given those restrictions.
- Assist with withdrawal strategies. When the time comes to actually start using your retirement savings, it’s not as simple as randomly withdrawing money. An advisor managed account program can help you figure out which buckets of income should be accessed first to make sure that your savings remain a sustainable source of income.
Advisor managed account programs can help you save more money by tailoring a solution to your needs. According to Morningstar research, 71% of participants who were not on track to achieve their retirement goals increased their savings by an average of 33% after enrolling for a managed account program. Furthermore, the off-track participants who used to manage their own investments increased their projected wealth at retirement by an average of 47% after enrolling in a managed account program.
For another data point, according to an Empower Institute white paper, participants in a managed account program save 4% more than other savers.
If you feel like you’re behind on saving, an advisor managed account program can help you get back on track to achieve the retirement you want.
Learn more about Advisor Managed Accounts with our Ultimate Guide to AMAs.
You don’t have to try and figure out how each piece of a retirement plan works anymore. With an advisor managed account program, we can help create the best path forward for you and your goals. Fill out the form below to get started.