How to manage your own (basic) retirement plan

Italian Mountains Uncle Kevin
You may be thinking, 1) “But Mike… my employer does that. Why would I need to manage my own retirement plan?”


Or, 2) “Retirement…? That’s about 40 years away. Why would I bother with that now?”


Or, (and this is the one I’ve heard most recently) 3) “Mike – I know that I need to be saving for retirement but I don’t know what to do?!?! Can you help?”


My responses, respectively:


1) What happens when you no longer work for your employer or decide your employer does a bad job of managing your retirement plan (you’ll be rolling over into an IRA, or something similar – Individual Retirement Account — Keyword: Individual)?


2) Come on man – the data show you need to get on it. There is no replacement for time, even if the investment is small. See this article for details.


3) No worries, it’s my goal that when you’re done reading this article, you’ll have the basic knowledge of what to do to get started


I’ve had a few people reach out to me recently regarding this topic and although I’m not treating this as a ‘mailbag’ post, I’ve compiled a few individual’s questions to hopefully give you a solid How-To Introductory Guide that helps you get “START MY RETIREMENT PLAN!!!!” crossed off your To-Do list. Thanks for being here and I’d love to know your thoughts in the comments section below. Better yet, if you know of someone who this guide may help out, please share it with them. Thanks again!





Step 1 – Choose an online brokerage and setup an account


Just like there are some great banks to have checking and savings accounts with, there are a few great companies that allow you to establish and run your own retirement or brokerage accounts. Think: Fidelity, E-Trade, TD-Ameritrade, Charles Schwab, and the like. Here is a great article from NerdWallet that lists some of the best options, depending on your situation.


What’s important to know is that each Online Brokerage Company (OBC) has different fee schedules, account minimums, trade commission prices, and other unique attributes. So evaluate each of the OBC’s to determine which best suits your needs.


For us, it has been Fidelity. They have hands down, the best customer service on a consistent basis of any company that I’ve worked with in the last 10-15 years (I’ve been investing with Fidelity since 2003). They are always available to answer questions, help with advice, and navigate toward accomplishing your goals in a timely manner. Aside from customer service, you’ll have the ability to establish your accounts either online or over the phone with help from one of their representatives.


Whether it’s Fidelity or another OBC, you’ll have great mobile or desktop access to your accounts in real time, and you’ll have the ability to go and meet someone in person as well (depending on the OBC).


Step 2 – Determine which type of account you will need to setup


Don’t be intimidated by not knowing what to do. What question are you specifically trying to answer:


I need to rollover an employer sponsored 401k


No worries, you’ll most likely go with a Traditional IRA. This option allows you to keep your tax-deferred money in an investment account without taking the money out and thus incurring the tax burden. You’re simply moving your 401k into your own IRA (remember, keyword – Individual), and it remains untaxed until you’ll eventually begin withdrawing income down the road.


I want to either start my own retirement plan, supplement the retirement plan I have from my job, or just invest for a rainy day (down the road)


For you, also no worries. You do have more options available, though. Roth IRA, Individual Brokerage Account, SEP IRAs, Custodial Accounts, College Savings Plans, …, are all available options. Some are for retirement (IRAs), some are for college, while others can be for any reason. Your Roth IRA contributions for a calendar year are capped at $5,500 (for those under 50) and if you’re 51 or older you can go up to $6,500 in contributions. If you’re opting for the Individual Brokerage Account, though, feel free to invest as much or as little as you’d like (depending on your OBC’s minimum account amounts.


The money going into the Roth IRAs and Individual Brokerage Accounts is already taxed and generally, means that only your capital gains will be taxed when you sell your shares or withdraw money from the account. For example, if you invest $10,000 and eventually sell and withdraw a total of $11,000, you would be responsible for paying taxes on the difference ($1,000). And if you lose??? No taxes there. But let’s try to avoid that situation, eh?


Step 3 – Determine what in the world you should invest in


There are thousands of options ranging from individual stocks to index funds encompassing hundreds of companies or more. There are bonds, real estate investments, start-up companies… The possibilities are seemingly endless.


I like to keep it simple and invest in index funds (I’ll get into the meat and potatoes of this process further below) for 2 reasons:


1) It’s easier than actively managing a stock portfolio, which causes me less stress.


2) A huge majority of fund managers (of all types) are unable to beat the S&P 500 index (a common market benchmark).


The ~33% of large-cap fund managers and < 15% of small and large-cap managers that were able to beat the S&P last year make up a minority, as is (data from the CNBC article above, and a simple google search of other major publications). And that’s before you look at the past 10-15 year periods which show that < 10% have beat the market over that time. Let’s not forget about taking a manager’s fees out of those earnings as well, and now we’re looking much less than good.


With that information, what kind of a self-absorbed jack-wagon would I be, who assumes that I can beat the market (the forensic scientist that blogs, works out, and dabbles in running a business) when career financial wizards in the highest seats on Wall Street can’t do it more than 33% of the time? I’d be pretty full of myself…


Maybe I could beat the market for a year or two (I’ve done that at one point in the past with guidance from grandpa), but eventually adversity would strike, I’d fail to make productive and timely decisions due to a lack of foundational knowledge, and I’d end up losing much more than I should’ve (I’ve also done this… no guidance required).


So, here’s what I do and why


I have chosen an index fund (VOO or a similar fund from a different company) that basically mirrors the S&P 500, which has produced an average annual return of 10% over its lifetime (since 1928). Granted, some years are big losers, some are huge winners, and others a middle of the road. But, over the long-haul, I can discount that 10% down to 7.5% for conservative sake and start planning my future.


The other thing is that not all of my money for retirement/future is tied up in the market. The S&P index provides diversity because it encompasses some 500 of the largest companies in the US, but what if the market tanks? For this reason, I like the idea of diversifying into other areas as well (real estate, business, and other investments).




Just like most unknowns in life – If you just sit there and marvel at what you don’t understand, the mountain will grow and grow before eventually, it’ll be so huge in your mind that you’d never dare to start climbing. My advice: jump into this thing. Make a phone call, start an account, and invest in an index fund. You won’t be rich tomorrow, but in 30 years you’ll be thanking your younger self.



Thanks for reading!


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I’m glad you’re here. Thanks again and talk soon!


– Mike
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