Will you work forever? Most people won’t, or can’t. Planning ahead for retirement is by far the most important financial decision you can make.
Yet planning for retirement is hard because there are so many unknowns about future income, expenses, market performance, and your personal situation. I have seen 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 either don’t follow it or don’t change the plan as their lives change.
RetireGuide is Betterment’s solution to these problems. With our smarter technology and award-winning design, Betterment is taking the mystery out of planning for retirement and eliminating barriers to executing your plan . That means you can have more confidence and a better chance of reaching your goals.
What is RetireGuide?
RetireGuide is a retirement planning tool, included with all Betterment accounts, that helps investors work through scenarios like:
- Am I saving enough money?
- When can I retire?
- 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?
- Am I using the right kinds of accounts for investing?
- How can I invest more efficiently for retirement?
RetireGuide uses information you provide and the balances from your Betterment accounts, as well as assets outside of Betterment, to answer these questions. You can digitally sync your non-Betterment retirement accounts to RetireGuide 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.
This is the only retirement planning tool available to investors today that merges an advice engine with a way to automatically save and invest in a diversified portfolio.
Your Savings and Spending Roadmap
When you start your retirement plan with RetireGuide, we first get to know you. We ask questions about your marital status, income, savings, and when you plan to retire. Next, we show what you’ll be able to spend based on your current savings and how it stacks up against your desired spending amount. Unlike most other retirement tools, RetireGuide is not focused on your total balance, but what you’ll be able to spend on an annual basis when you stop working.
We focus on your spending level because we believe this is the best starting point to provide savings and investment advice. When you do stop working in the future, this is the actual after-tax income you will have to live on each year in retirement.
However, annual spending level is often the hardest to plan for when it comes to creating an actionable plan because you need to factor in multiple variables, including current and future taxes.
How does RetireGuide work?
RetireGuide 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, from the ZIP code where you plan to retire to your expectations for Social Security benefits to your income increases. By adjusting these variables, you can create as many personal scenarios as you want. You can even upload your Social Security data file, which includes earnings history and estimated benefits, to get more precise about your future income streams.
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 in the tool to provide 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’s in store for you.
A key differentiator for our calculations is that we account for taxes—based on the accounts you invest in—by adjusting the expected returns while saving and the withdrawals 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 now and 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 RetireGuide’s methodology here.
Take Action to Save More
After you have your retirement plan in place, you can immediately take action directly through RetireGuide. It is the only automated retirement planning tool available that advises you how and where to save more—and then provides a way to start investing correctly 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 RetireGuide, you can set up and invest in a portfolio with the recommended mix of stocks and bonds. You can also set recurring deposits so that you increase your chances of meeting your target.
A 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? They turned to RetireGuide to find out.
To get started, Jeff and Sarah synced their current retirement savings accounts to RetireGuide:
- Jeff’s 401(k) balance: $400,000
- Jeff company stock: $120,000
- Sarah’s 401(k) balance: $300,000
- Total saved: $820,000
- Total annual retirement contributions: $36,000 (maximum contribution to both employer-sponsored plans)
RetireGuide showed Jeff and Sarah that they are not currently saving enough to retire at age 62—and in fact need to increase their savings significantly to $110,000 per year if they want to make that happen.
However, Jeff and Sarah know they cannot save an additional $80,000 on top of what they are already doing, especially because they are still paying down their mortgage and saving in a 529 education savings plan for their kids.
What are their options?
Option #1: Lower their expectations for retirement spending.
Jeff and Sarah adjust their plan in RetireGuide 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 in 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) balance and savings rate, they can retire at 66 by saving an additional $9,000 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 use a traditional IRA. Jeff and Sarah can contribute $5,500 each. They can set this up in less than five minutes with RetireGuide.
By pushing back their retirement age to 66 and slightly increasing their savings, Jeff and Sarah have an actionable plan to get them to a comfortable retirement.
Of course, things will change over the next two decades—but RetireGuide has provided crucial information to get Jeff and Sarah aimed in the right direction.
Retirement Advice for Everyone
RetireGuide provides sophisticated retirement guidance that is easy to understand, always up-to-date, and simple to change as your life changes.
I started my career in financial planning at a traditional advisory firm—my father’s firm—providing financial and retirement advice to several hundred clients each year. Despite the customized advice and personal interaction we offered, I saw many people simply put off execution of their plan.
Now, 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, with RetireGuide.