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THE IMPORTANCE OF GOALBASED RETIREMENT PLANNING
from Bell Wealth Q3 2023
by Bell Bank
-Mike Kobbervig CFA®, CEBS. SVP/Retirement Plan Services Division Manager
Our time and attention are constantly pulled in different directions by the decisions we make. It can be overwhelming – and one way to simplify saving and investing decisions for retirement is to take the time up front to determine your goals!
Unfortunately, many of us make quick saving and investing decisions at initial retirement plan enrollment, or in education meetings, based on questions like these:
• What can I spare to save without changes to my spending patterns?
• What is the match formula?
• What investment is performing the best this year?
You should take advantage of a group retirement plan at work, but sometimes those initial decisions become limiting. In our rush to enroll, we ignore the basic premise of setting goals that can help guide future decisions, especially when downside volatility arises.
Quick enrollment “wizards” are great for making decisions faster and easier, but have an unintended consequence: there’s little foundation for decision-making. A better approach might be to use the forecasting tools available on participant web portals. Various plans may have a different look to their forecasts, but the engines are similar. These forecasting tools allow you to quickly customize goals based on savings rate, expected returns, anticipated retirement age and required retirement income. Once the data is populated, you can evaluate scenarios based on projec- tions, then refine inputs (such as how much you save) to more closely align with retirement goals.
Unfortunately, most retirement plan participants just set a savings rate and pick an initial investment. After that, they check their quarterly statement to see if the account has increased in value recently. Worse yet, they may make decisions detrimental to their overall goal, relying on input from others that may have no bearing on their retirement.
To analyze your approach, and how you could improve it, ask yourself:
• Have I ever compared my investment performance to a co-worker’s or friend’s statement?
• Have I ever decided to change investments without considering long-term expectations?
• Have I ever compared my investment performance to my partner’s statement without regard to their risk/ return profile?
Planning for a retirement goal, especially with your partner, is important – and takes time. Spending time up front, with annual tracking toward your goal, will save you time in the long run and help you avoid the pitfall of overreacting to daily market movements. A consistent approach, with the ability to make minor adjustments along the way, can give you more confidence in your plan and likely increase the chances that you attain your retirement goal!
