By Glenn Ruffenach
Two publications from Boston College and the school’s Financial Security Project can help you get a handle on your money in retirement and demystify target-date funds.
The reports, both free online, are titled “Managing Your Money in Retirement” and “Why Target Date Funds?” As with most material from the research staff at Boston College, the publications are succinct, easy to understand and highly useful.
To start, “Managing Your Money” is divided into three parts. In “Define What You Need,” the authors discuss monthly expenses in retirement – with a special nod to medical bills. (One in four Americans age 65, the report notes, is expected to spend at least one year in a nursing home at an annual cost of $75,000, which isn’t covered by Medicare.)
In “Add Up What You Have,” the report takes into account, among other assets, Social Security benefits, pensions (for those fortunate individuals who still have one) and home equity. (For better or worse, many retirees have more money tied up in their homes than they do in their 401(k)s and/or individual retirement accounts.)
Finally, in “Decide What to Do,” the publication shows how a hypothetical couple with a small nest egg – an all-too-common situation – can lay out a plan that meets their financial needs. Perhaps most important, the report urges readers approaching or entering retirement to “think and act long term, which [people] don’t naturally do.”
In the second publication – “Why Target Date Funds?” – the Financial Security Project explains how these important products work (gradually shifting your savings from “growth” to “safety” over time), their shortcomings (such funds, which aren’t immune to bear markets, “are hardly magic,” the report notes), how to pick a fund that suits your needs – and the importance of keeping fees low.
For example, a person retiring at age 65 who contributed to a 401(K0 for 40 years with a fee that amounted to 0.2% of assets could have a nest about 20% larger than a person whose fees totaled about 1% of assets.
In short, the publication notes that a target-date fund is “generally a reasonable place to put all your retirement savings.”