<< Retirement Account Setup Checklist

Companies from an Employer-sponsored Plan

If you have an employer-sponsored plan, the brokerage firm is determined by your employer. If your employer matches any portion of your contributions, you should enroll in this plan and contribute at least up to the company match. The “match” is free money that will often equate to a 100% or a 50% return on your investment. (Note that in order to keep the full match you may need to stay at the company for a vesting period, often 4 years where you get 25% each year. But even if you leave the company early this “match” is still a great return and worth taking advantage of.)

Employer Match Examples:

• • Example #1: Your plan says “Employer matches 100% of your contributions up to 3% of your salary.” This means, if you make $100,000 your employer will contribute 3% of that – i.e. $3,000 – as long as you also contribute $3,000. If you only contribute $2,000, your employer will do the same. If you contribute $4,000, your employer will only contribute $3,000 because that’s their max.

• • Example #2: Your plan says “Employer matches 50% up to 6%.” This means your employer will contribute half of what you contribute up to the limit of 50% of 6% of your salary. So if you make $100,000, and you contribute $6,000, your employer will contribute half of that, $3,000. If you only contribute $3,000, your employer will only contribute $1,500. If you contribute more than $6,000 your employer will still only contribute their max of $3,000.
    
    Did you notice how in both examples above, the company match is equally generous at $3k? But the second one requires you to save more in order to get the full match. (In the long run, this extra saving will do you good!)

If you don’t have a company sponsored plan, you’ll need to choose your own brokerage firm. These include companies like Vanguard, Fidelity, Charles Schwab and many others. We mention these three specifically because they are known for providing great options low expense ratio funds that retirement account holders can invest in. But there are many good choices. Below is a list of the things you should be looking for in an online brokerage company. Use the notes section above to jot down points of comparison.

• • Wide Range of Funds: For retirement investing you’re likely going to be investing in index funds, exchange-traded funds (ETFs), and mutual funds. While many of these funds will be available at multiple brokerage companies, not all of them will and if they are, they may have slightly different fee structures and minimums depending on where you buy them.
    
    We recommend considering the funds you’re interested in, and doing a comparison of fund fees and minimums between brokerage companies. Or for the simpler approach, if you know you are going to invest primarily with funds from a particular company (e.g. Vanguard), open an account with that company since they will have the lowest fees and requirements for their own funds (other companies may offer the same options for those funds but they certainly won’t be any better).

• • Low or no Account Fees: Some brokerage firms charge “maintenance fees” for retirement accounts. These could be as low as $10 or $50 annually and there may be an ability to have the fee waived if you meet certain requirements. That said, there are so many brokerage firms that won’t charge these fees so we recommend finding one that doesn’t have a fee or has such easy fee-waive requirements that it will never be an issue.

• • Low or No Transaction Fees: Transaction fees are what you will be charged every time you make a purchase of a fund. In recent years brokerages have eliminated many of these trading fees. But for much longer than that, many brokerage firms have offered their own funds and many others as “no load” funds, meaning there is no transaction fee. This is always great but particularly important when you’re making regular, automatic purchases weekly or monthly. Make sure you choose a broker that offers the funds you’re interested in without charging transaction fees.

• • Good Website: Spend some time on the company’s site and make sure it feels fairly intuitive and user friendly. The major brokerage companies all put a lot of effort into their websites and should have a website experience and resources that work for you.

• • Good Customer Service: At some point you will need to work with the customer service department. Check out online reviews or call the customer service line to get a sense of the helpfulness of the representatives, call wait times, etc.

A Note on “Robo-Advisors”

Since the late 2000’s (2008 to be specific), a new variety of brokerage firm called a “robo-advisor” has emerged. They are an alternative to a professional financial advisor and online brokerage firms. If you’re interested in one of these feel free to do some additional research online (and note that there are “robo-advisor-like” features offered at online brokerages as well). While they can be a viable investment option for investors who want to be completely hands off (and some have great tools for managing your day to day finances), at MoneySwell we’ve decided not to recommend them for investing purposes for the following reasons:

• Fees: Their fees will be lower than a “real person” financial advisor but still be more than going with an online brokerage firm. These fees will eat into your portfolio returns.
• “Rebalancing”: Rebalancing your portfolio is one of the commonly cited benefits of robo-advisors but even for those who want to be totally “hands off”, you can easily achieve this by purchasing a target date fund which will automatically rebalance as you get closer to the set target date.
• No Choice: With a robo-advisor, you don’t get to choose your investments, they do it for you. This may work out fine but you’re putting all your trust in a single company and the algorithms they have created to align with your personal finance profile.
• Empowerment: To be empowered you have to be informed and be involved. But a robo-advisor’s “do it all for me” approach may discourage that. With MoneySwell and dozens of other fantastic online and offline resources, you have all the tools you need to be empowered – and there you can still take a mostly hands-off approach. In the long run, being at least a little bit involved is likely to serve you best.