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What's Keeping You From Saving $1 Million for Retirement?


Bill Van Sant, senior vice president and managing director of Univest Investments, a division of Univest Wealth Management at Univest Corporation, was featured in U.S. News and World Report

June 30, 2017
By: Rebecca Lake, U.S. News and World Report Contributor

Saving $1 million for retirement is a lofty goal, and 37 percent of workers say they’ll need at least that much to retire comfortably, according to the Employee Benefit Research Institute.

Reaching that magic number, however, may be easier said than done. EBRI’s most recent Retirement Confidence Survey found that 47 percent of workers had less than $25,000 set aside for retirement.

If you have been saving diligently but are still far short of your target, your investment choices may be holding you back. Avoiding these portfolio missteps could help you reach the million-dollar mark in retirement.

Misplacing assets.

Asset allocation matters, but asset location is even more important, says Bill Van Sant, senior vice president and managing director at Univest Wealth Management in Souderton, Pennsylvania.

Investors "should be looking at the real rate of return, which factors in return of investment minus taxes and inflation,” Van Sant says.

Inflation, he says, wouldn’t necessarily affect your goal of reaching $1 million in retirement but taxes would. Putting investments in the wrong spot could create a tax drag on returns.

For example, mutual funds with a high turnover rate may be better placed in an employer’s retirement plan or an individual retirement account to avoid triggering short-term capital gains tax. More tax-efficient exchange-traded funds, on the other hand, may be a better fit in taxable accounts.

Paying attention to taxes while you’re still working can determine how much of your savings you’re able to keep once you retire, says Robert Baltzell, vice president of Los Angeles-based RLB Financial.

For example, “saving money in a traditional IRA could substantially hurt your retirement in the long run because taxes may eventually go up,” Baltzell says, which would make a Roth account the better option.

Roth IRA withdrawals are tax-free in retirement, a feature that especially benefits investors who expect to be in a higher tax bracket as their working years wind down.

Overlooking cost.

High fees can also impede building a million-dollar nest egg.

Keeping expenses down is a priority, says Paul Jacobs, a certified financial planner and chief investment officer at Palisades Hudson Financial Group in Atlanta.

“By focusing on low-cost index funds, instead of more expensive actively managed funds, you may be able to add hundreds of thousands of dollars to your retirement account balance over time,” Jacobs says.

Index funds can be substantially cheaper than paying an active manager 1 percent or more in fees to manage investments.

Audree Begay, a certified financial planner and advisor with Ameriprise Financial in Houston, says investors should identify the value that any fee or cost associated with an investment provides.

Review those costs annually along with your tax planning strategy, Begay says. “Look for transparency in what you’re paying for and what you receive in return.”

Getting risk wrong.

Taking on too much risk – or not enough – are two sides of the same coin, says Rob Austin, director of research at Alight Solutions in Charlotte, North Carolina.

“If markets go up, then having more risk is better; the opposite is true if markets go down,” he says.

But without a crystal ball, you'll have to rely on the traditional way to establish an appropriate risk level: your age.

“For young investors, not taking enough risk is the biggest issue,” says Cameron Hinds, regional chief investment officer for Wells Fargo Private Bank in Lincoln, Nebraska. Meanwhile, older investors nearing retirement may get hurt by gambling too much with their investments.

But even older investors can't afford to be too conservative too soon.

“People are living longer; therefore, they’ll have a longer retirement and a higher risk of running out of money,” Van Sant says.

Unless investors gauge risk accurately, their portfolios won't generate the additional growth needed to keep up with longer life expectancies.

Begay says investors who don’t take enough risk may need to compensate by increasing their savings rate. Saving 20 to 30 percent of your income, versus 10 to 15 percent for an investor who’s less risk-averse, may not be realistic, however. In that scenario, you’d have to reconsider whether playing it safe is the best way to meet your goal of saving $1 million for retirement.

Increasing risk exposure may produce higher returns, but the chance of losing money increases correspondingly. The key, Jacobs says, is to keep your baseline in sight and avoid succumbing to emotion-based decisions.

“Investing requires discipline, especially when the market is falling,” Jacobs says, and investors who panic and sell at the bottom can damage their portfolios irreparably.


Diversification helps manage risk and being under-diversified can hurt your portfolio in more ways than one, says Winfield Evens, director of investment solutions and strategy at Alight Solutions in Chicago.

One result may be lower absolute returns if you’re holding too many short-term assets, such as money market funds or stable value funds, Evens says. The same is true if you’re over-allocated to a single security that underperforms.

Investors who concentrate too many assets in aggressive investments are also at risk.

“Few investors worry when an investment is going up in a quick and volatile manner,” Evens says, “but the reality is that most investments that are volatile on the upside tend to be volatile on the downside.”

Avoiding large portfolio losses, even when you have a long-term horizon for saving, could well determine your ability to accrue $1 million or more, Hinds says.

Diversifying appropriately in aggressive assets is extremely important, he says, as is creating a more balanced portfolio allocation as retirement nears.

In a bullish market, under-diversification can help garner above-average returns, but if the tide turns suddenly, investors may struggle to get ahead of the shift in time.

“Over the long term, diversification and rebalancing provide the greatest chances to reach your goals,” Begay says. “This doesn’t mean the risk of loss disappears entirely, but diversification can provide some downside protection, allowing you to recover more quickly.”

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Securities and insurance products are offered through Univest Investments, Inc., member FINRA/SIPC and a licensed insurance agency. Investment advisory services are offered through Girard Partners, a Univest Wealth Management Firm. These affiliated companies are licensed subsidiaries of Univest Corporation of Pennsylvania. Products and services offered are not FDIC insured, are not a deposit of or bank guaranteed, and are subject to risks, including possible loss of any principal amount invested.

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