Understanding your emotions, and learning to manage them, is a great advantage when investing. Much of portfolio theory and investment research is based on what a rational person would do. But people are not rational, particularly when it comes to their money.

Nobel prize winner Daniel Kahneman and Amos Tversky studied risk behavior and applied it to the economics of investing. Their research forms the basis of behavioral finance and how people apply mental shortcuts to investing as opposed to an analytical and deliberate strategy. Being thoughtful about your investing, even when you are afraid, can lead to long-term gains.

Let’s focus on the emotional side of portfolio management.

Risk Preferences

Before investing, we spend time discussing your comfort level with risk so we can better understand how you may react under different market circumstances. This is where your emotional response to the ups and downs of the market really come into play. When markets fall and you are excited because you have an opportunity to invest, you probably have a high risk tolerance. If you get scared during market downturns and feel like the sky is falling, you are most likely in the low tolerance category.

Additionally, we consider your timeline for investing. If you need short-term funds, we would want to invest conservatively, or make sure you have cash on hand. For longer term needs, we may invest more aggressively. 

Another part of your risk profile is your capacity for investing. Think of this as how much you can afford to lose. For example, if you are retired with a small income and only $100K in investments, you may want to be conservative as you cannot afford to lose those funds. On the other hand, suppose you have a large steady pension along with Social Security and real estate income. If you have the same $100K in savings, you may be able to invest more aggressively as a loss would not have the same negative impact.

Finally, education helps you become comfortable with stocks and investing. Learning increases your understanding and your comfort with the risks in all markets.

Manage Behavior

Our behavior often works against us when investing.

When we listen to the news headlines, we might hear that stocks are going to soar this year. Or, more often, the markets are going to crash. Maybe you feel like you have a strong insight into a particular business sector, so you focus only on those stocks. These ideas make us want to buy or sell in an attempt to take advantage of the business cycle. However, this is hard to do.

You need to manage your emotions when you are investing. Focus on the things you can control, not on markets and news. Don’t worry about how a stock performed yesterday. It may react very differently today. 

A client told me that when Trump was first elected president, she sold out of the markets because she was afraid everything would crash. Stock markets were booming. So, when Trump was elected for his second term, she felt like the economy would be great, so she purchased tech stocks. The magnificent seven declined about 11% in his first 100 days. Her emotions failed her investing decisions.

It’s difficult to decide the right time to sell out of stocks during a business cycle. Often, we see clients sell out of fear. When clients want to do this, we have to ask: if you get out now, how will you know the right time get back into the market? It’s even more difficult to determine when to buy back in. Essentially, you would need to be correct twice without the benefit of hindsight. By having a diversified portfolio calibrated to your big picture goals, you do not need to focus on market timing.

One of the benefits of being well diversified is not having to react to markets. We encourage our clients to tune out the noise they hear from the media and pundits and continue on their current investment track. 

One tool we use to keep your portfolio on track is a simulation of your investment results with hundreds of potential variables. This allows us to factor market changes into your investments so you can be more confident that your plan will withstand daily volatility changes, regular market price pullbacks, and random catastrophes. Your plan is built to withstand those. While we don’t know exactly what it will look like next time the market is shaken by volatility, we do know it will happen and we have a plan for it.

Embrace Patience

Investing and trading are two different activities. Investing is boring – like watching paint dry. You set up your investments and wait. Changes are made when your circumstances change. 

Trading, however, is exciting. Look at websites such as CNBC.com and YahooFinance.com. They are busy, have lots of details and numbers, and they let you know what’s going on. Now, look at a sports website such as ESPN.com or YahooSports.com. They are busy, have lots of details and numbers, and they let you know what’s going on. Now check out Stake.com, a gambling website. Same thing. These sites are all designed to make your interest into a game of chance.

Trading is a game. Investing is a long-term strategy. 

Markets will work for you, but only when you are patient. Remember – it’s not timing the market, but time IN the market. We design portfolios for the long term and encourage patience.

Discipline

Creating a portfolio that works for your personal situation is a thoughtful, rational process to meet your personal goals, reduce costs, and diversify across multiple investment categories. This is the first step, which then needs to be balanced with the emotional side of investing.

Maintaining your portfolio requires discipline to stay on track when times are uncertain and markets are volatile. Having a rational portfolio that fits your risk comfort level is the first side of the equation. Maintaining the discipline to keep your investing on track over time is more difficult as it means taming our emotions during periods of exuberance and turmoil. Keeping the rational and the emotional balanced is the key to success.

Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and investment management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.

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This is where we help.

We are here to help clients understand how their portfolios work, and educate them on markets and products.

Much of portfolio theory and investment research is based on what a rational person would do. The “rational person concept” helps us build portfolios by assuming that investors act in their own interest, make logical decisions, and have access to relevant information.

Let’s focus on the rational side of creating a portfolio. 

Goal Based Strategy

We have always been a “planning first” firm. To us, this means that we create a financial plan first, and then determine the products or investments needed. This step-by-step process allows our clients a sense of financial wellness and gives them clarity to see how products and investments fit into their overall picture. Having the big picture prevents clients from being “sold” products that are not the right fit.

Understanding your core values allows you to live your fullest life. When your finances match your ideals, you can live in alignment with the things that are important to you. Your values match your goals, and your goals match your passion and the life you want to lead. All of this is captured in your financial plan.

Having a portfolio that aligns to your goals and values gives you more assurance that you can meet your near term and long-term goals, while not sacrificing your family’s safety. This focus grounds your investing. When news is bad or things change, you can always go back to your plan and know that your investments have been factored in your overall direction.

Our younger clients are investing for retirement. This important goal is far in the future, and they understand the value of investing for their future life. For many of us, it’s drilled into our head – save, save, save.

Our retired clients, on the other hand, focus on the dual goals of not running out of money during retirement and minimizing taxes. This requires a different mindset, as well as a different type of portfolio. 

Each of these circumstances has clients investing differently to meet their goals, so their overall  plan affects their portfolio construction. 

Low-Cost Investing

When thinking of low-cost investing, most people immediately equate it with passive investing. While passive investments are inexpensive, it is not a “set it and forget it” solution.

While the passive investing approach hints at an index approach—like the S&P 500 or the Bloomberg Aggregate Bond Index—it doesn’t mean that there are never any changes to the portfolio or to the individual investments. While the individual investments may rebalance securities anywhere from one to four times a year, each fund may need to be replaced depending on markets, management, or your personal needs.

Choosing and Maintaining Low-Cost Investments

There is actually a lot that goes into selecting and maintaining a low-cost type of portfolio:

• We start with the rational process of creating the right asset allocation mix, which is done during the planning process.
• Next, we choose appropriate investments, such as mutual funds or ETFs, which meet your goals.
• We then allocate the right type of investments to the right type of accounts, known as asset location, to maximize growth and minimize taxes.
• We monitor your account over time and make asset allocation adjustments as needed.

We believe that the average person cannot outguess the market, which is why holding an index of funds for the long term is important. Markets tend to be efficient and move based on known information, so it’s extremely difficult for a person to make trading decisions that out-guess the market. By the time you know the information, it has already been factored into market prices. 

While we always start with a core set of passive investments, (often index funds,) we may use active satellite investments to boost performance. These funds may hold fewer, more targeted securities, which may be traded more often depending on the goal of the fund. Low fees are a hallmark of passive index funds. Active funds often have greater costs to account for greater management and trading fees. These funds can produce outsized returns depending on their purpose and structure.

Remember: the lowest cost funds do not always make the most efficient portfolio for your needs.

Diversification

There are multiple levels of diversification, which is a fancy word for “don’t put all your eggs in one basket.” 

First is your asset allocation. This is dividing your funds between stocks, bonds, and cash.

Next, each piece of your asset allocation is divided into smaller pieces. For example, stocks can be divided into US and International. US stocks can be further divided into asset classes of growth stocks, value stocks, mid-cap, and small cap.

By the time you get to the level of individual stocks, your overall pool of money is diversified across multiple asset classes and individual securities. You want to diversify across the investment universe. 

Diversification does not mean having multiple accounts at different banks and brokerages. That is just spreading money around and can be more expensive to track and maintain. It also does not mean purchasing investments that are unfit. If gold or bitcoin are not a fit for your plan because they are too risky, then you don’t need them for your portfolio to be diversified.

When a stock market index, such as the S&P 500, decreases, a diversified portfolio of 60% US and Foreign stocks along with 40% US and Foreign bonds will perform differently than the index. For example, this chart shows that when the S&P 500 was down 3.26% over a four-month period, a diversified 60 / 40 portfolio was up 0.24%:

Taking a diversified approach to investing allows you to take advantage of market upswings while having protection when markets are down. 

Discipline

Creating a portfolio that works for your personal situation is a thoughtful, rational process to meet your personal goals, reduce costs, and diversify across multiple investment categories. This is the first step, which then needs to be balanced with the emotional side of investing.

Maintaining your portfolio requires discipline to stay on track when times are uncertain and markets are volatile. Having a rational portfolio that fits your risk comfort level is the first side of the equation. Maintaining the discipline to keep your investing on track over time is more difficult, as it means taming our emotions during periods of exuberance and turmoil.

Keeping the rational and the emotional balanced is the key to success.

Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and investment management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.

The post The Rational Side of Investing appeared first on Pathfinder Planning.

Blueprint for the Financial Planning Tower

The idea for the tower came as I started my financial planning firm. I began sharing with my friends my newfound career shift from stay-at-home-mom. I would say “I’m a financial planner” and they would respond, “Oh, so you sell insurance.”

No, no, no. That wasn’t right at all. I had to find a way to explain what financial planning was. So I began reading, researching and drawing.

Armed with background information from the likes of the Bible, the Certified Financial PlannerTM board, and lots of books and online searches, this idea came to me. Every financial group seemed to have a pyramid type shape, which seemed  to be a good place to start. The images I found were very focused on investing, which is only a piece of the puzzle, and I wanted to cover all aspects of financial planning. 

Two other pyramid shaped concepts came to mind. First, Abraham Maslow’s hierarchy of needs which explains how humans are motivated. Second was the Food Pyramid. I know that is now passé, but it still seemed an appropriate metaphor.

Should I call it a pyramid? Nope – sounds too much like Bernie Madoff and a pyramid scheme where people lose money. A tower sounds better. Towers are strong and sturdy and something to be proud of when complete. After much introspection (because that’s what introverts do) I developed the concept of a Financial Tower.

Level 1 – Financial Planning Tower Basics

Maslow’s hierarchy of needs begins with Physiological needs. Humans cannot really grow beyond this level until these needs are met. For example, if you are hungry, it’s difficult to focus on taking care of your children. You have to meet this basic need first.

Similarly, grains at the base of the Food Pyramid were thought to be the foundation for a solid diet.

Your budget is the foundation for all of your financial planning and makes up Level 1 of Your Financial Planning Tower.

Income

The base level of the tower begins with your Income. Remember when you were a kid and your mom gave you an allowance? Or maybe your grandmother gave you some money for your birthday. Maybe you earned money for babysitting or lawn work. Regardless of where it comes from, income is where everyone’s budget begins.

Expenses

Next comes your Expenses. Once you have some income, you’ll want to spend it. Notice that your expenses block is smaller than your income block. When your expenses are less than your income, you’ll have money to set aside in savings for an Emergency Fund. 

Emergency Fund

Your Emergency Fund is a critical corner of support for your Financial Planning Tower. Not only does this savings allow you to have money for unexpected events, it builds the habit of setting aside money. It trains you to save for a rainy day. Conventional wisdom says to have between 3 to 6 months worth of expenses in savings, but that number may be more or less, depending on other factors. Your job security, amount of debt, income, and other investment resources also factor into the right amount.

Notice that if you don’t have this block of your tower complete, the pieces above it are likely to fall.

Level 1 is the place where everyone starts budgeting. Just like Maslow’s concept of your Physiological needs, you have to have a budget first. If you have never created a budget, you still have one, it’s just dysfunctional. 

Just like the complex carbohydrates this level represents, your budget provides lots of energy, but little nutrition. It’s essential to your needs and always in motion, but doesn’t really grow your overall wealth unless you use it wisely.

As a planner, I want to be sure your budget works.

Level 2 – Financial Planning Tower Safety Needs

Maslow’s second level is Safety. Until this need is satisfied, more or less, we can move to the next level. In  financial planning terms, this level of Your Financial Planning Tower is critical. Your safety needs protect the things you have and people you love, providing a strong second level for your tower. Financial planning around risk solves everyday problems.

Fruits and Vegetables

Families need more savings for specific spending items. You know when you need new tires on the car? You may not want to purchase them, but it certainly feels better to use money that you have instead of putting them on the credit card to pay another day. That’s why these extra savings categories are fruits. Everyone loves fruit.

We also need insurance and estate planning. These are your vegetables because nobody likes them, but you have to have them because they are good for you. 

Operations and Maintenance Funds

The first block is your Operations and Maintenance Funds. (By the way – if anyone comes up with a better name, please let me know!)

Anytime you own something that’s very large, you will have to take care of it. And that costs money. The three main things you need to maintain are:

• Home
• Cars / Vehicles
• Health

There will be times in life when you will need money to pay large expenses. For example, you may need a new roof for your home. Or you may need tires for your car. Maybe you need to meet a large medical deductible. These expenses are not in your normal budget. You should set aside money so that when they happen, you’ll be able to pay for them without having to dip into credit. 

Long Term Goals

Often we have specific goals we want to fund. For example, maybe you are saving for a trip to Europe, a wedding, or you are looking to buy a new car within the next few years. These are goals that you can budget and save for on a regular monthly basis.

That trip to Europe for the family may cost $10K. So, if you save a regular amount each month, plus any bonuses you may receive, you may decide that you can take that trip in about two years. That’s a powerful goal that the whole family can get behind!

Insurance

Managing risk helps protect from catastrophic hazards that could bankrupt your financial plan. Insurance provides a means to protect your family if you pass away. And it replaces your income incase you cannot work.

When planning, you will want to look at your health and property needs to protect your larger assets.

Reviewing your life insurance and disability insurance are a means of protecting your income. I’ve seen lots of plans with too little in disability and too much in life insurance. 

Long-term care is a category unto itself. You may or may not need this type of insurance, but it may be difficult to make this decision without some additional expertise.

A proper needs analysis will help you decide the right amount of insurance as well as the right type of policy to purchase.

Estate Planning

Estate planning is not just a concept for rich people. It’s the surest way to protect your family if you aren’t there.

Estate planning is the only place that you can designate someone to be the guardian of your children or manage funds if you’re incapacitated. You do not want to leave these decisions to the laws of  your state.

This is not just a need for when you die – it’s also for while you are alive. If you are incapacitated, you want to be sure you have the right people making your health and financial decisions.

As our dependence on technology grows, your digital accounts need attention. Uncle Ben may be a great executor when dealing with accounting paperwork, but Cousin Zach might be the best choice to manage your Facebook and Twitter accounts when you are not here.

Having instructions like these gives you the peace of mind you need to move to the next level.

Level 3 – Financial Planning Tower and Investing

Now that your first two levels are set, we move up to the fun stuff that everyone wants to talk about – retirement and investments. This is the traditional venue for financial planning.

Level 3 of the Financial Planning Tower is equivalent to Maslow’s Love and Belonging level. This is where we develop our sense of belonging and really begin to feel good about ourselves and others. The Food Pyramid expresses this level as Dairy and Meats. It’s much richer up here!

Retirement Funding

Everyone loves to talk about how well their 401(k) is doing when the market is up, and how terrible things are when markets are down. The top questions that I get revolve around when, where and how much is needed to retire.

Personally, I believe the government has made it extremely difficult for working families to save for retirement. It’s too complex! People have gazillions of questions about IRAs, Roth IRAs, 401(k)s and other retirement plans. Pension plans also get their fair share of concern. These plans are more common than you may think. In addition to teachers, police, firefighters and other state employees, many companies still offer pensions to employees.

And don’t get me started on Social Security, except to say that yes, I believe it will be there when you retire. 

Education Funding

Families look out for their children, so college saving runs a close second to retirement in terms of major goals. Unfortunately, we often wait too long to begin addressing this item, so parents seem panicked when they realize they only have two years to save.

When considering college, parents have many questions including:

• what is the viability of the student loan system?
• how do we effectively save?
• what is a 529 Plan and how does it work?
• can we afford the rising rate of education?

The rules around college often change with a new Presidential administration. We also need to consider if our children are ready for a four-years program. They may be better suited for two-year college, an apprenticeship or waiting and attending later. There are so many variables to address it can be overwhelming without some help.

Level 4 – Financial Planning Tower and Your Passion

Now that these three levels are covered, we move into what Maslow would call Esteem. Just like our body fat, our Esteem keeps us warm and happy. Level 4 of Your Financial Tower is your passion. While it is not directly related to money, this level is an emotional driver for all our goals.

We need to feel good about what we are doing in our life. We can be happy being an engineer, housewife, accountant, food server, or any number of careers, but often we are not. That may be because we haven’t done a good job building our tower. When we have not met our “deficiency needs”, as Maslow says, we have a difficult time being motivated.

When we are misspending and not saving, we always feel like we are behind the 8-ball. We feel like we can’t leave a job where we are unhappy because we have bills to pay and mouths to feed. We may feel trapped in a role that isn’t fulfilling because it doesn’t use our God given talents.

This is a time to rethink our purpose, maybe change old habits, and set new financial goals so we can shift from a job as an accountant to a passion of horse training. Or a food server to a bakery owner. Or a housewife to a financial planner.

Level 5 – Financial Planning Tower and Your Legacy

Level 5 of Your Financial Planning Tower is your Legacy. For us, that means our legacy – like Maslow’s self-actualization or the sugar on top. These are the things we leave behind.

This doesn’t necessarily mean the money we leave, although that is part of it. We’ve all heard the horror stories of debt-ridden people with nothing left for the kids. Families are then left to fight over the teapot.

Our legacy is truly how we are remembered when we are gone. Do you want to be remembered as someone who didn’t have much money, but was a great photographer who shared his work with everyone? Or would you rather be remembered as an overworked executive who didn’t have time for the kids?

Our legacy often has very little to do with our money.

In the Basement of the Financial Planning Tower

Now, if you look at Maslow’s tower, or the food pyramid, you’ll notice that that’s all there is. A few levels that build a triangle shape. However, in finance, we still have to deal with our debt.

I really had to think about this one, since there was no other comparable concept within the models I had. So I looked at my tower and decided that debt is just spending more money than we have, so it had to be an expense. But it couldn’t go up, so it had to go underneath our expenses. And down, and down.

Then, I thought what would it be like if we didn’t get the emotional support we need? And what if we didn’t get the food we need to survive? Well, that would be starvation, and that’s exactly what debt is.

When you continue to borrow money, your income goes to pay for expenses you couldn’t afford in the first place. You can never build your tower up because you are always busy filling in that hole. Debt robs us of the funds we need to build our tower, so we have to use it prudently and keep it under control. 

Construct Your Financial Planning Tower

After years of planning and telling the story of your Financial Planning Tower, I have seen it positively impact others. People often tell me that they never thought of planning that way, or that the image made so much sense to them.

Pathfinder Planning uses the Financial Planning Tower to help working families find gaps in their finances, fill them in, and continue building. Here are some examples of the successes our clients have had:

• Paid off $100K in debt
• Had disability insurance in place before a skiing accident
• Completed estate planning to accommodate an adult special needs child
• Rebalanced retirement accounts resulting in reduced investment fees and increased return projections
• Savings to support their family when the breadwinner lost their job during COVID
• Bought a second home
• Changed from a job to a dream before age 50

We understand how difficult it can be to address all your competing needs at once. The Financial Planning Tower gives you the structure you need to prioritize and achieve your goals. These concepts can and do work for our clients! They can work for you as well.

Pathfinder Planning LLC is a registered investment advisor in North and South Carolina. We serve young adults and working families by providing personal financial planning and asset management for a simple fee. www.pathfinderplanningllc.com

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Your 401(k) or 403(b) accounts are a smart place to store your retirement money — there’s no disputing that. However, simply directing a percentage of your paycheck into it every month and expecting the culmination of funds to support you through your golden years is not enough. 

You need to understand how your investments, the plan’s fees, and any employer match play into putting you on track for your retirement goals.

If you own a television (or have been near one at any point over the last decade), there’s a good chance you’re familiar with the phrase ‘Set It and Forget It’. In fact, it was this catchy slogan — popularized by Inventor and TV pitchman Ron Popeil — that grew sales for his Ronco rotisserie oven to well over 8 million units in the United States alone.

Here’s the thing, though. 

While “set it and forget it” is a great idea in the kitchen, it is far less effective when it comes to your retirement savings. With that in mind, here are four key things to know to get the most out of your 401(k).

Contribution Behavior

A study carried out at Harvard and Yale revealed some astonishing financial behaviors in retirement-age participants. 

In the study (titled $100 Bills on the Sidewalk: Suboptimal Investment in 401k Plans), employees over 59.5 years of age were unaffected by the amount their employers were willing to match in their 401(k) plans. 

Not only did the participants ignore the amount of their employer contribution when deciding how much to contribute themselves, but they also did not show any significant changes in behavior if there was no penalty for early withdrawal. 

On average, these employees missed out on $507 of “free money” by not taking advantage of their employer’s matched contribution.

So, what does this all mean? It means that if you are not participating in your company’s retirement plan, you are missing out on money.

Based on available research, there are two common reasons most people aren’t getting back as much as they should. The first is procrastination and the second is having too many choices within the plan. 

Thus, if employees are given a deadline for signup and a reasonable number of choices, they are more likely to save.

Fortunately, you can make this work for you.

Set a Deadline for Yourself  

It sounds easy to set a deadline, but many people don’t like to think about saving for retirement. They’re often caught up in the here and now of daily expenses, short-term savings, and emergency funds. However, if you want to get the most out of your 401(k) plan, you need to set a deadline for yourself and get the ball rolling.

This means that you should set a reasonable date to signup with your employer and begin making contributions. This will push you to start making contributions earlier. The sooner you start, the more you stand to gain down the road. A great time to do this is at the end of the year when you commit to your medical and other benefits.

If you already have a 401(k) plan, you’ll still need to decide when to start making contributions. For example, you could say, “I’m going to contribute 5% of my pay in my company’s 401(k) plan beginning in July.” Done! Now, go online and get it done!

Review Your Investment Choices

Every 401(k) plan gives you investment options, but no two plans are the same. You may have a lot of options to choose from or you might have just a handful. Either way, you should take the time to review what’s available to you and make an informed decision.

If you feel overwhelmed with too many choices, you don’t need to make a decision on your own. You can always reach out for guidance. Saving for retirement is extremely important, so you should never make any decision unless you feel well-versed in your options. 

That said, if you’re comfortable making the selections on your own, go for it!

Maximize Your Employer Matching Contributions

Not all employers offer matching contributions, but if yours does, you should absolutely take advantage of it. Matched contributions are literally “free money” for your retirement. So, if you contribute the maximum amount possible to your 401(k) every year, you will get the maximum amount in matched contributions as well!

In addition to contributing the maximum, you should also start contributing as soon as possible. You can’t start taking advantage of matched contributions until you make contributions yourself. 

So, what are you waiting for? Your Financial Mom is telling you to start now!

Pathfinder Planning LLC is a registered investment advisor in North and South Carolina. For more information, visit www.pathfinderplanningllc.com. 

The post How to Get the Most out of Your 401(k) or 403(b) Plan appeared first on Pathfinder Planning.

Saving for retirement is the most boring thing you can imagine. You set aside money, don’t look at it, and hope it grows. Employers know this, which is why 401(k) and 403(b) accounts are so popular. 

401(k) plans are sponsored by corporations and other employers, while 403(b) plans are offered by non-profits, medical facilities and educational institutions. 

Though they do have a few differences, 401(k) and 403(b) accounts both help you accumulate savings without worrying about high fees or continuous tax deductions. These are the most common types of plans offered by employers to help you save and chances are you probably have one.

Whichever type you have, let’s take a look at 7 tips so you can make the most of your retirement plan. 

1 – Go Beyond Target Date Funds

Retirement planning requires you to choose how you invest your money. Target Date Funds are one popular option, as they allow for strong growth early on, with increased security over time. This type of fund begins with a stock-heavy investment plan, but shifts to bonds as you get closer to retirement.

While Target Date Funds are an easy way to invest, they may not be the best way to prepare for retirement. Target Date Funds work well for those with relatively small balances. However, if your balance is larger, you could end up paying a lot in hidden fund fees, and the glide path may not fit your retirement goals or match the market ups and downs.

If you have larger balances, individual funds are worth a look. You may find less expensive funds that meet your goals and you have more control over your funds as markets change.

2 – Lose the Stable Value Fund

Stable Value Funds offer investors a conservative way to add an income stream to their portfolio. Stable Value funds may have higher yields than money market funds, with little to no additional risk. However, Stable Value Funds offer you cash and not much else.

The problem is that Stable Value Funds do not have much growth potential, so the only benefit is the interest earned. While getting extra cash is great, you want to make sure that your long term funds are doing more than just accumulating interest. So, in order to mix things up and diversify your portfolio, consider a short term bond fund instead.

3 – Look At Overall Plan Fees

401(k) and 403(b) account fees can take a sizeable chunk out of your retirement funds. Each year, look for an annual disclosure that outlines all of the fees you’re paying. Though there’s not much you can do about them, it is good to keep yourself informed. Knowing how much of your retirement goes towards fees could affect how you choose to invest in the future.

4 – Check Out Your Company’s SPD

Every company that offers 401(k) or 403(b) plans must provide employees with a Summary Plan Description, or SPD. An SPD provides an outline of your plan’s benefits and describes exactly how your plan works. Also, it’s one of the most boring reads you will find. Fortunately, they are not terribly long.

Like plan fees, there’s not much you can do to change the information in your SPD, but you should always be well-informed on how your retirement funds are allocated. 

5 – Always Meet the Company Match

As an incentive to retain good workers, many companies are willing to match the amount you put into your retirement account. The company can choose any amount they wish, which is why some plans are better for you than others. A greater match means more money for your retirement.

While it’s not necessary to exceed your company match (as the company will not contribute anything beyond that point), you should always meet it. When a company matches your contributions, it is literally free money for your retirement. There is nowhere else you can get a 50% – 100% return on your investment, so you should absolutely take advantage of the opportunity.

6 – Increase Your Contributions When You Turn 50

When you’re young, it can be difficult to meet the IRS maximum allowable contribution. Maybe your income isn’t high enough or you have other spending needs. 

Fortunately, when you turn 50, you have the option to add more. And this is a good time since you are probably earning more, the kids may be out of the house, and you have more control over where your income goes. 

Retirement plans do allow for these “catch up contributions.” This means that once you turn 50, your contribution limit increases by a set amount, determined by the IRS. 

7 – Don’t Take Out a Loan

Since the money in your 401k or 403(b) account is yours, you technically still have access to it before you retire. That said, there are rules for when and how much you can take funds out. If your plan allows it (some don’t), they generally allow a loan of up to 50% or $50,000 of your vested balance, whichever is less. 

However, since you are “borrowing” from your 401k or 403(b), it is treated as a loan. This means that you will need to pay it back with interest. Needless to say, taking out a loan from your account slows down growth and impedes your ability to hit your retirement savings goals on time.

This is my number #1 pet peeve about these accounts. No matter how you try to justify it, there are very, very few times that these loans are helpful. Taking out a loan generally speaks to a bigger spending and budgeting issue that needs to be controlled. Be sure to exhaust EVERY other avenue before lending to yourself.

The Bottom Line

Careful saving is not a fast route to amass a large nest egg, but it is the surest. And it goes a long way toward building a stress-free retirement.

The better you’re able to maximize your savings today, the more financial security you’ll buy yourself in the future. That’s why it is so important — no matter the type of plan your company offers — that you contribute as much as you can afford and take full advantage of your opportunity to put money away for the future.

Doing so will put you on your way to a comfortable retirement at a time in your life when you most certainly deserve it.

Are you looking for personalized advice to improve your retirement accounts? Jumpstart your savings and debt management strategy today with Pathfinder Planning!

The post 7 Tips for Making the Most of Your 401(k)/403(b) Account appeared first on Pathfinder Planning.

Pay down debt or save for retirement? 

Many of my clients have a lot of competing priorities, and the most common one is whether to pay down debt, or save for retirement. It’s probably a question we have all asked ourselves at one time or another. While there’s no one-size-fits-all answer, there are certainly some pros and cons to both options that you should consider. 

Deciding how to deal with competing priorities requires an evaluation of your specific circumstances, as well as your financial goals. In any case, let’s take a look at some advantages and disadvantages of these two big options.

Advantages of Paying Down Debt 

• You learn to live on a budget – For some people, this may sound like a negative. However, budgeting is a learned skill that is vitally important. Making higher payments on credit cards, mortgages, or other loans will invariably require you to cut back in other areas. This, in turn, will necessitate a strict budget that is aggressive, without being unrealistic. Once your debt has been paid off, these new skills will carry over into other areas, like investing and saving for retirement.
• You can save a lot of money on interest – Interest rates on loans tend to be much higher than those on savings accounts, so paying down your debt first can actually save you more money in the long-term. The faster you pay down your debt, the less you will pay in interest.
• It takes a huge weight off your shoulders – It goes without saying that having debt is stressful. From a credit card that you struggle to pay down to an auto loan with high monthly payments, debt can really make you worry about your financial footing. Paying off all of your debt is one of the most satisfying and worthwhile things you can do for your future.

Disadvantages of Paying Down Debt 

• It takes away from your cash flow – Paying down debt will help you learn to live on a budget, but it will also require you to dedicate a large portion of your cash flow to loan payments. This, in turn, will require you to live very frugally for a few years. 
• You may struggle during an emergency – It is always smart to put aside savings for an emergency, but if you are focusing your attention on debt payments, you won’t have much left to save. If an emergency situation does occur, you may not have the necessary funds to cover the additional expenses. 

Advantages of Saving for Retirement

• It’s very easy with a 401k – Assuming your employer offers it, a 401k plan is one of the easiest ways to save for your retirement. A 401K allows employees to set aside a portion of their paycheck before taxes are taken out. This way your savings are invested and have the potential to accrue greater earnings over time. Additionally, your employer may match your savings, which is essentially free money for you, with the added bonus that your taxes will either be lower or delayed for many years.
• If you start early, you will see a lot of growth – Most people know that you should start saving as soon as possible, but it is often difficult to understand the importance of savings when you are still in your 20’s. However, if you start setting aside money during this time, your savings will see a lot of growth by the time you’re ready to retire.
• Saving gives you peace of mind for your future – While the future is never certain, having a healthy savings plan can help stave off the uncertainty of retirement. Many people worry that they will not have enough to cover their expenses once they are too old to work, but making a savings plan (and sticking to it) can help eliminate this fear.

Disadvantages of Saving for Retirement

• It diverts funds away from your current expenses – If you live paycheck-to-paycheck, setting aside money for retirement might feel like a luxury you simply cannot afford. Thankfully, there are ways to save for almost any budget. You may need to cut back on non-essentials or change your current lifestyle.
• Saving is a slow process in the beginning – When you first start saving, you will not see very much growth. This often causes many people to take their money out of savings, but this is a huge mistake. You will need to power through the early years to see how your money can accumulate.

So Which Is Better: Paying Down Debt or Saving for Retirement?

Honestly, why not do both? If you have a retirement plan through your employer, try to contribute as much as you can – at least enough to get the company match. You won’t miss this money since it comes out of your paycheck first and never makes it into your checking account.

This will allow you to focus your remaining funds on paying down your loans. Your minimum payments should already be part of your budget and, whenever possible, you should budget for more than the minimum. If your regular take-home pay is not enough, then you know you need to make some spending decisions. 

Should you really want to speed up the process, consider getting a side-gig or working freelance in your spare time. If you do whatever it takes to pay your debts quickly and save for retirement, your future self will thank you. Remember: no one gets in debt overnight, so you don’t get out of it overnight either.

Are you looking for personalized advice to improve your finances? Jumpstart your savings and debt management strategy today with Pathfinder Planning!

Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.

Your Financial Mom blog posts are not meant to be legal, accounting or other professional service advice. Content represents the opinion of the author only. Pathfinder Planning LLC is not responsible for the accuracy or validity of content contained in third-party comments.

The post Should You Pay Down Debt or Save for Retirement appeared first on Pathfinder Planning.

As Boy Scouts, my kids love their Swiss Army knives. They use them for everything and always take them camping. These all-purpose tools have a knife, file, screwdriver, scissors, tweezers, bottle opener, and more.

As you are planning for retirement, you may find you have a Swiss Army knife full of accounts, each with different functions. They all hold a unique place in your retirement plan.

Here are some of the different components that you may find in your retirement strategy.

Social Security

Social Security is the social welfare and insurance program managed by the U.S. federal government and funded by employee taxes. It issues retirement benefits as early as age 62, with the amount increasing on a yearly basis.

These benefits vary based on the number of years you work and contribute to Social Security, your salary during those years, and the age at which you opt into receiving the benefits.

Think of this as the main knife in your set. Most everyone will receive Social Security as a base for their retirement income.

Pension

Pensions are work-sponsored retirement funds accumulated from employer and employee contributions over the course of employment. The employer decides how to invest these funds and essentially guarantees a portion for the employee when they retire.

During retirement, pensions distribute either one lump sum or a monthly income using a formula based on an employee’s salary and years of service to a company.

Kind of like the scissors in a pocketknife, some people have them and some don’t. If you have a pension, it’s great!

That’s an extra layer of guaranteed income that you can count on.

Employer-Sponsored Retirement Plan

Corporations offer 401(k)s while public schools and tax-exempt organizations offer 403(b)’s. The three-digit numbers are based on the IRS code and refer to employer-sponsored retirement plans and both an employer and employee can contribute.

Unlike pensions, an employee gets a say with their 401(k) or 403(b)’s investment decisions and can choose from a specified list of stocks and bond mutual funds. These days, more and more companies, especially those in the private sector, offer 401(k)s instead of pension plans.

Think of these accounts as the Phillips head screwdriver. They serve a great purpose and are amazingly useful. Sometimes, they have hidden fees and they offer limited investment choices, or your employer may not offer a retirement plan. So they only work in certain circumstances.

Individual Retirement Account (IRA)

Individual retirement accounts (IRAs) are a type of savings account used for retirement planning.
You can set these up with a bank or brokerage firm and invest in your choice of stocks, mutual funds, bonds, and cash. It’s worth noting that there are different types of IRAs, but the most often talked about are the traditional and Roth IRAs, each of which come with their own tax benefits.

Unlike work-sponsored retirement accounts, IRAs have lower annual contribution limits.

Think of an IRA as your combination flathead screwdriver / bottle opener / wire stripper – it serves triple duty.

You get tax deferral on the growth and either tax deferral on the contribution or distribution (not both). Also, you get to control the investments that go in it, so you can choose the most cost-effective funds that suit your goals.

Regular Savings

Regular savings accounts are interest-paying bank accounts intended for both short- and long-term saving. We mostly think of these accounts as a vehicle for emergency expenses.

While withdrawing early from IRAs and other retirement-specific accounts can result in costly tax penalties, withdrawing from a savings account poses no such risk—though there’s often a limit to the number of free withdrawals you can make in a month.

Compared to other retirement tools, bank savings accounts have fairly low returns, with an average interest rate of 0.08 percent.

Savings accounts are the small knife. Useful for just about anything, easily accessible, and frequently accessed.

Rental Income

Owning real estate can go far in helping fund retirement. Not only does rental income provide a steady cash flow, but there are also a number of tax deductions available for landlords.

However, real estate investing can be challenging because it involves financial management, property upkeep, and tenant rental logistics. On top of that, mortgage payments, property taxes, maintenance costs, and other fees make it a “capital-intensive” investment—in other words, it isn’t cheap.

Just like the combination small flathead screwdriver / can opener, rental income not only helps your budget with current income but also looks to gain value the longer you hold it.

Health Savings Account (HSA)

Available to people covered under high-deductible health plans, health savings accounts (HSA) are funds set aside specifically for medical expenses. Employers and employees make tax-deductible contributions to these accounts, and withdrawals are tax-free so long as the money goes towards approved healthcare costs, like hospital fees and dental care.

HSAs aren’t necessarily intended for retirement, but they’ve become a useful retirement tool given their tax benefits.

You know that little round keychain piece on the knife? The one that nobody uses? That’s what this is. It may be there or it may not be there. Either way, it gets neglected.

Annuities

An annuity is an insurance contract, not an actual investment. You agree to pay the insurance company and they agree to issue you regular payments or one lump sum of money during retirement.

Buyers set their payout period so that they can expect to receive payments for a set number of years or for the rest of their lifetime. These accounts generally come at a hefty cost, though, with high annual fees and broker commissions.

This is the hook. Literally. That hook in your Swiss Army knife that you can never get out. You can’t open it, therefore you really don’t know what the tool is, what it does, or how it works. The hook can hold up to 200 lbs if it’s used correctly, and annuities can be used correctly. Often, though, they are not.

The tools on a Swiss Army knife are valued differently by different users. In much the same way, these different retirement tools may not be the best fit for everyone. For instance, not everyone has rental property that can be used to generate income.

Regardless, it’s a good idea to create diversified retirement sources that include more than Social Security and savings from your income. You wouldn’t use a Swiss Army knife for just one tool, after all. Take advantage of your different retirement planning options to optimize your retirement security.

Could you use a hand in utilizing all of the tools in your Swiss Army knife retirement plan? Let’s talk! Click here to schedule a complimentary intro meeting to get started.

Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.

Your Financial Mom blog posts are not meant to be legal, accounting or other professional service advice. Content represents the opinion of the author only. Pathfinder Planning LLC is not responsible for the accuracy or validity of content contained in third-party comments.

www.pathfinderplanningllc.com

The post The Tools in Your Swiss Army Knife Retirement Plan appeared first on Pathfinder Planning.

My dad was the best cash flow expert I knew. He would have money put into his retirement fund, get the company match, remove his contribution and make extra loan payments to get them paid early.

There was not enough money at the end of the month, so this was how he made things work for our family of six. Could we have spent less? Maybe. Could he have earned more? Don’t know. But I do know that sometimes you have to do the best you can with what you have to work with.

If your income doesn’t go quite far enough, you have some tough choices to make. Let’s look at how you can make decisions to pay Paul without robbing Peter.

Make sure the basics are covered

The first step in getting a handle on your bills is figuring out your priorities. Sure, all of your bills need to be paid, but in a pinch, there are some that are more important than others. At the top of that list are food and shelter.

In order to survive, you must eat. Along those same lines, in order for money to survive in your bank account you must establish a food budget (and stick to it). Creating a weekly menu and shopping with a list are the two biggest ways to tame your food spending. To make your dollars stretch even further, consider shopping at a low-priced grocer instead of the more popular supermarket chains. Aldi, for example, is known for having prices much lower than other grocery stores best sales prices — and that’s including coupons.

You also need a place to sleep, and while you could live with others (or sleep in your car if worse came to worse) those are both less than ideal situations. And let’s face it, there’s just something about having your own space, so be sure to allocate your resources towards covering your rent or mortgage as one of your top priorities.

Bring out the scissors, it’s cutting time!

Now that we have the basics covered let’s talk about cutting your non-essential costs.

Start by making a list of all your bills.

Do you have an expensive cable TV package?  It’s probably time to get rid of it because right now, you can’t afford it. So sorry, but TV is a luxury.

Are your kids in a million after-school activities? I’m hate to be the bearer of bad news, but you’ll probably need to cut those too. Or the kids need to chip in to pay for their favorites.

When it comes to getting your finances back on track and digging yourself out of debt, the hardest part is making fundamental changes to the way your family operates. Sometimes that means forgoing entertainment, but it has to be done! If entertainment is going to the movies, then change it to a Redbox rental. You can still have fun, just find inexpensive fun.

Of course, you don’t have to blindside the family — instead consider holding a family meeting and getting input into what’s going to stay and what will be cut.

Once you’ve decided what non-essentials you’re eliminating from the budget, now it’s time to start tracking your spending to identify any additional cuts that could be made.

For the next month, I want you to write down what you’re spending everyday. There’s no doubt you’ll be surprised with the results.

Are you going to Starbucks every morning for your caffeine fix or ordering avocado toast on a regular basis? You’re easily spending upwards of $35 a week so that’s something else you can cut for sure.

Is date night costing you $50 a week? That’s at least $200 a month! Cut that too (or find a more economical alternative) because you can’t afford it. That doesn’t mean you can’t spend time together, it just means you have to be creative.

Tracking your spending allows you to identify both the obvious and not so obvious ways you’re spending your money and eliminate any unnecessary leaks.

Develop A New Budget

Now that you’ve made your cuts and sealed any money leaks, it’s time to establish a new budget. Start by adding in your basic necessities that we covered first: food and shelter, then work your way through the items that remained after making cuts to your non-essential spending.

Once you’ve done that, add in birthdays, holidays, and any other expenses that you expect to have within the next twelve months. You may want to categorize your budget items by how critical they are. For example:

A Items – must pay items such as food, rent, water, electricity, gasoline

B Items – really important items like credit cards, other bills, clothing

C Items – nice to have items like cable, eating out, entertainment, gifts, beauty, pets

Cut out your C items first. These are actually the hardest as they require discipline and a lifestyle change, but they have the biggest impact. Then cut your B items to the bone. A items will have to stay, but minimize them as much as possible.

Take the total and subtract it from your estimated take home pay. Is the number positive?

If not, go back and cut some more.  

But Pam, there’s nothing else to cut!

Experience tells me that if someone is really focused on fixing their money problems, there are always additional items that can come off the budget. The problem is, few people are willing to endure that type of discomfort. But for argument’s sake, let’s say you aren’t able to make any additional cuts.

What then?  

Earn More Money

There are two ways to balance a budget – spend less or earn more. Find a higher paying job, take on some overtime, start a side hustle. Heck, there are even places that you can take surveys or donate blood to earn a few extra bucks.

Who knows, what might start as a way to earn some extra money might lead you straight to the intersection of your passion and God given ability — which is where the real magic lies. Look for a side gig that is something you really enjoy. I just saw my niece and she has four jobs: babysitting, house cleaning, working at a clothing store, and crafting for others. She is doing things she loves and too busy to spend much money, so that’s a side benefit.

Now, make no mistake about it, doing everything that I’ve mentioned above is a lot of work.  But the truth is, it takes effort and constant attention to where your money is going to dig yourself out of a financial hole.

And yes, it is often exhausting, but the alternative is worse.

It really comes down to how bad you want it. What are you willing to sacrifice to rid yourself of the stress and worry associated with not being able to cover your expenses each month? If it’s a short period of hard work and some discomfort, you’re in luck because before you know it you will be back on your feet having learned a lot about yourself in the process.

Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.

Your Financial Mom blog posts are not meant to be legal, accounting or other professional service advice. Posts represent the opinion of the author only. Pathfinder Planning LLC is not responsible for the accuracy or validity of content contained in third party comments.

The post Make Your Money Stretch Without Robbing Peter to Pay Paul appeared first on Pathfinder Planning.

When I first started working, my employer offered a 401(k) retirement plan. I didn’t know too much about it other than I could save for retirement, just as the name implied. So, I signed up. Although many workers have access to some type of retirement savings plan through their employer, like me when I started, few truly understand the inner workings of these plans or have much justification for why they chose the underlying investments that they did.

And I completely understand why!

On the surface, 401(k) plans just sound so simple. Money is taken out of your paycheck and invested based on your preferences. If you’re lucky, your employer might even contribute a little extra on top. So far it sounds like you could just set it and forget it, right?

Well, not quite.

Each employers’ plan is different which means that there is never a one-size-fits-all method of navigating the planning process. Couple that with the fact that few employers actually provide any real guidance on the how to distinguish between the different investment options and it’s easy to see why so many Americans are confused when it comes to preparing for retirement.

If you’re part of the crowd that can relate to being a little overwhelmed when it comes to what you should focus on when choosing between your retirement plan options, you’ve come to the right place.

Here are a few key aspects of retirement plans that should help eliminate the confusion and guide you toward making smarter decisions for building your nest egg.

Contributing to Your Plan

A lot is made about the investments within a 401(k) plan, which, of course, is a valid concern. But before you get to the point of picking the investments offered by your plan, you must first figure out how much of your paycheck will go into your 401(k) account.

While the amount you contribute will be based on what works given your income and expenses, the benefit of simply getting started will prove invaluable for your long-term growth.

Here’s some Mom advice: The biggest determiner of being able to retire comfortably is not the funds you pick or the market returns. It’s regular, consistent savings. In other words, if you don’t put anything in, you can’t expect to get anything out.

In fact, with pre-tax contributions, the money you sock away today will go toward reducing your taxable income — which may lead to a lower overall tax bill now.

Although the tax breaks are a great benefit, for many people the big draw to 401(k) plans is the employer contribution. If your employer offers this benefit, you’ll want to read the fine print to make sure that you’re in a position to take advantage of it.

Here are a few things to look for.

Some companies will match your contribution dollar for dollar while others will give you a percentage of your contributions (ex: $.50 for every dollar that you contribute) up to certain amounts.

No matter the matching amount, it’s (essentially) free money, and could be an immediate 50 to 100 percent return on your contributions.

Now, it’s probable that these employer matches will come with stipulations. For example, you may need to be at the company for a certain period of time before that money is vested, or yours to keep.

Sometimes the vesting schedule is gradual, meaning a certain percentage of the employer’s contribution becomes yours after a set time (say, 25% after one year on the job, 50% after two years, etc.). In other cases, the total amount becomes yours at a set period of time (say, five years of employment with the company) and if you leave prior to that time period any money contributed by the company would be forfeited.

*One thing to note, even if you leave a job before the company match vests, the money that you’ve contributed is always yours to keep — regardless of how long you worked there.

Choosing Your Investments

Choosing how to invest your nest egg includes so many different variables that attempting to help you reach that conclusion here in a blog post would be nearly impossible — not to mention a BIG compliance nightmare. That said, since you’re here, the least I could do is make sense of the overall concept of investing for retirement and hopefully give you a few things to consider for your own situation.

At a very basic level, there are two primary types of investors. Some that are more risk averse and choose investments that leave very little room for volatility, but also limit the growth potential. And conversely, others that can stomach the ups and downs of the market with the rationale that with high risk comes (potentially) high reward in the form of portfolio growth.

The thing is, 401(k) plan offerings run the gamut — from some that only have a few options to others that have literally hundreds. With such a wide range of choices available, conventional wisdom says that you should make your investing decisions based on your age and your risk tolerance.

Over the years I’ve seen a lot of advice that centers around the idea that the younger you are, the riskier you can afford to be. The thought is, if you can handle the market swings, you’re generally better off in stocks (which historically have returned more than bonds over time) for the long term.

While there is some validity to those sentiments, I would caution you to avoid choosing your investments without looking ‘under the hood’ to determine the underlying investments within that portfolio.

Far too often people choose an investment option based solely on the name of the fund, only to realize that name means nothing.

Don’t be that person!

If you’re still stuck and need to make a decision soon, a target date fund might be a good starting point. These funds help spread out your risk and automatically shift assets to more conservative investments as retirement nears.

Watch out for fees! They’re everywhere!

In addition to understanding contribution and investment options, you should also be aware of the different fees that your 401(k) plan may incur. Think about it this way: just as your money compounds over time, so do your fees. In some cases, those fees can total upwards of 30% of your portfolio by the time you retire.

The bulk of the fees you will pay on your 401(k) plan will come in the form of asset-based fees.

These are things like:

An Investment Management Fee: charged to pay for the investment manager. Typically, this fee ranges from 0.25% to 1.0% of assets in the fund.

The Administrative Expense: A fee allocated to overhead expenses, such as the cost of registering the mutual fund, mailings, maintaining a customer service line, etc. These costs can vary in size from fund to fund but typically range from 0.05% to 0.40% of invested assets.

Commissions: These fees are paid to a broker for servicing the retirement plan account. Typically this fee ranges from 0.25% to 1.0% of invested assets.

Another ‘fee’ that you could unknowingly find yourself the victim of, is one of the more common mistakes that individuals make when leaving a job — withdrawing their 401(k) balance instead of rolling it over into another account.

This is a HUGE!

If you’re invested in a traditional 401(k) plan, not only will you have raided your savings earmarked for retirement, but you’ll also get hit with a 10% early withdrawal penalty — in addition to the income tax that you will have to pay on the withdrawal.

While there are a few exceptions that allow you withdraw 401(k) funds prior to the age of 59 ½ (permanent disability or a qualified military reservist called to active duty), chances are, you will face some form of penalty for doing so.

Conclusion

Although this is not an exhaustive list of every detail related to your retirement plan, I think this is probably a good place to stop. Hopefully, by now you’ve gained more clarity on the options available and have some insight on the factors that are most important to you.

And by the way, remember how I said I started saving when I first started working? Well, that money has been growing for 20 or 30 years and now I have a nice nest egg built up. I never missed the money I contributed. You can do that too.

As always, if you have questions or would like to talk in detail about your specific situation, click here to schedule some time to chat.

Cheers to a strong finish to 2017!

Pamela J. Horack, CFP® of Pathfinder Planning LLC provides personal financial planning advice and asset management for a simple fee to young adults and working families in North and South Carolina through group classes, one-on-one planning, and ongoing advice.

The post Do Your Homework: Understanding How 401k Plans Work appeared first on Pathfinder Planning.