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Retirement Planning

Create A Personalized Retirement Plan

Our retirement advice shows you whether you are on track for a comfortable retirement—and helps you invest seamlessly based on the recommendations we provide.

Articles by Alex Benke, CFP®

By Alex Benke, CFP®
VP of Advice and Investing, Betterment
Published: April 28, 2015 | Updated: January 25, 2019

Our retirement advice helps you determine how much to save for retirement.

You can easily create a personalized plan for you and your family.

Start investing in just a few clicks based on our recommendations.

Planning ahead for retirement is by far one of the most important financial decisions you will make in your lifetime.

However, planning for retirement can feel difficult because there are so many unknowns about future income, expenses, market performance, and your personal situation. Too many people put off planning for retirement because of all those hard-to-answer questions. Even worse, many people may make a plan once—but then they either don’t follow it or they don’t change the plan as their lives change.

We can help you. Betterment’s retirement planning advice helps to provide you with a solution to these problems. We take the mystery out of planning for retirement and help you identify barriers, so that your retirement goal can become a reality. The advice that we provide will not only give you more confidence, but a better chance of reaching your goals.

Retirement Planning Advice

Our retirement planning advice, included with all Betterment accounts, helps investors work through scenarios like:

  • When can I retire?
  • Am I saving enough money?
  • Am I using the right kinds of accounts for investing?
  • How can I invest more efficiently for retirement?
  • What will my retirement look like if I don’t increase my savings rate?
  • How will my spending change if I move to a different location in retirement?
  • How much will I have to live on each year in retirement?

We use the information you provide and the balances from your Betterment accounts, as well as assets outside of Betterment, to answer these questions. You can electronically sync your non-Betterment retirement accounts to your Retirement goal for advice that refreshes daily based on your latest balances. It also provides a seamless way to start saving more in a globally diversified portfolio of ETFs, based on your retirement plan’s recommendations.

Your Savings and Spending Roadmap

When you first set up your Retirement goal, we spend a few minutes getting to know you. We ask questions about your marital status, income, savings, and when you plan to retire. Next, we show you what you’ll be able to spend based on your current savings, and compare how it stacks up against your desired spending amount. Unlike some other retirement tools, your plan is not focused on your total ending balance. Instead, it focuses on what you’ll be able to spend on an annual basis once you stop working.

We focus on annual spending because we believe this is the best starting point to provide advice to you on how you should be saving and investing. When you do stop working in the future, this is the actual after-tax income amount you will have to live on for each year that you are retired.

However, annual spending levels can often be the hardest to account for when it comes to creating an actionable plan, because you need to factor in multiple variables, including current and future taxes.

What Information is Used to Create My Plan?

Your Retirement goal stays updated with your current Betterment and synced non-Betterment account balances, and it’s always available for you to revise. We use the information we already know about you as a customer, as well as a few extra inputs, to help personalize your plan and determine how much your current savings plan may allow you to spend in retirement.

You can adjust nearly all the inputs in your retirement plan, such as the ZIP code where you plan to retire, your expectations for Social Security benefits, and your expected income increases. By adjusting these variables, you can create as many personal scenarios as you want.

In all, there are more than 20 pieces of information that go into creating your plan. You can also revise information as you progress in your savings plan from year to year.

In all, there are more than 20 pieces of information that go into creating your plan.

We make some key calculations to provide you with a roadmap that is as accurate as possible. We always provide a range of outcomes—from worst case to likely case—in order to provide a more accurate view of what may be in store for you.

What makes our calculations so useful is that we also account for taxes—based on the accounts you invest in—by adjusting the expected returns while saving and the withdrawals while in retirement. The tax rate we use is based on your current or retirement income, your state of residence, and standard deductions for your marital status.

When it comes to your investments, we project their growth according to our recommended portfolio both now and while in retirement. For our recommended actions, if you have 20 or more years until you retire, we recommend 90% stocks. Our underlying investment advice reduces your risk over time until your retirement date, when it hits 56% stocks. Then it glides down to 30% stocks during retirement.

You can read more about our retirement planning methodology here.

Take Action to Save More

After you have your retirement plan in place, you can immediately take action directly through your Retirement goal. You can start investing in a globally diversified portfolio of ETFs in just a few clicks.

For example, your retirement plan may recommend adding a Traditional IRA or a taxable account to boost your savings rate. Using the recommendations in your plan, you can set up and invest in a portfolio with the appropriate mix of stocks and bonds. You can also set recurring deposits so that you can increase your chances of meeting your target amount.

Hypothetical Case Study: You Can’t Retire on a 401(k) Alone

Jeff is 46 and earns a $250,000 salary from his job in pharmaceutical sales. His wife, Sarah, also 46, earns $150,000 from her position as a hospital administrator. They have three children, the oldest of whom is 12, and together they own a house in New Jersey.

Their goal is to retire at age 62 and keep their current spending level of $150,000 per year. Are they saving enough today to make that happen?

To get started, Jeff and Sarah synced their current retirement savings accounts to their Retirement goal:

  • Jeff’s 401(k) balance: $400,000
  • Jeff’s company stock: $120,000
  • Sarah’s 401(k) balance: $300,000
  • Total saved: $820,000
  • Total annual retirement contributions: $38,000 (maximum contribution to both employer-sponsored plans)

Jeff and Sarah’s retirement plan showed that they are not currently saving enough to retire at age 62—and in fact, they need to increase their savings significantly to $110,000 per year if they want to reach their goal.

However, Jeff and Sarah know they cannot save an additional $72,000 on top of what they are already saving, especially because they are still paying down their mortgage and saving in a 529 education savings plan for their kids.

What are some of their options?

Option #1: Lower their expectations for retirement spending.

Jeff and Sarah adjust the spending target in their plan to see how much they need to save to achieve a retirement spending level of $100,000 per year and retire at 62. It would mean saving $29,000 per year across their retirement accounts.

Option #2: Retire later, save more.

If Jeff and Sarah don’t want to live on less money in the future, retiring later is another option. With their current 401(k) balances and savings rate, they can retire at 66 if they save an additional $7,000 per year, for a total of $45,000 in savings each year.

They are already maxing out their 401(k) plans, so they consider their IRA options. Their income is too high to qualify for a Roth IRA—but they can both invest in a Traditional IRA. Jeff and Sarah have the option to contribute $6,000 each. They can set this up in less than five minutes from the “How to Save” section of their plan.

By pushing back their retirement age to 66 and slightly increasing their savings, Jeff and Sarah have an actionable plan to help get them to a comfortable retirement.

Of course, things will change over the next two decades—but the advice in Jeff and Sarah’s plan has provided crucial information to get them aimed in the right direction.

Retirement Advice for Everyone

The advice provided in each customer’s Retirement goal provides sophisticated retirement guidance that is easy to understand and simple to update as your life changes.

Through Betterment, this type of advice is available to not just hundreds, but hundreds of thousands of people who need it. All it takes is a few clicks.

Contributing Authors

Andrew Westlin
Financial Planning Professional, Betterment

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