Build Your Retirement Stack: It’s About More Than Just Contributions

September is a serious month for most of us regarding money. I’m seeing posts and articles about doing Financial Diets/Fast. In September, folks start adding money to their savings accounts for the holidays. Some employers start talking about Open Enrollment when it comes to your benefits.  Also in September, we get a reminder about retirement planning. Depending on when you’re reading this – September 6th is National 401K Day. This is going to be a bit of a long one, folks!

Yes, a day to remind you that you aren’t a Retirement Millionaire (if you are, congratulations!). But one of the sentiments that I’ve been seeing when it comes to retirement is that folks legit don’t know what they are, they just know that they contribute to them. Along with that, some people can’t contribute as much as they need to do to life life-ing and inflation making it hard to stash money away in your 401K.  And how can I forget that more people are using their 401K as ATMs to help with the gap that inflation is creating in their budgets/wallets?! 

Even with Secure 2.0 - Americans are lost with the cost of contributing money for retirement and how to have enough to distribute to cover life costs for later. When making notes to write this newsletter, I thought back to what 20-something Nadia needed to know about Retirement when she first got on her semi-corporate job. The funds that made sense and how to not take from that account a couple of years later to serve as an emergency fund later. While I was in my 20s doing those fumbles, I noticed with headlines and even my clients that a lot of people still make those hiccups well into their 50s and beyond. If that is you, this is a safe space. 

I want to talk you through building your retirement stack. I’ve brought up this notion multiple times how just having your core 401K will not cover the multiple pulls for money that your retirement could create. Your 401(k) is a critical part of your financial future, and the good news is—you don’t need to max out your contributions to see real growth. With a few strategic moves, you can make the most of what you’re contributing right now. Also here’s an old blog post about retirement!

Let’s break it down into simple, actionable steps to build your 401(k) stack effectively.

1. Contribute What You Can – Consistently

It’s not about maxing out—it’s about being steady and consistent. Whether you’re contributing 3% or 10%, regularly putting money into your 401(k) allows it to compound and grow over time. Doing some towards your contribution is as important as doing nothing. 

Quick Stack Tip: Increase your contribution by 1% each year. It’s a small change that can lead to major growth over time.

2. Focus On Low-Cost Index Funds

Depending on how your retirement plan is structured, you could see the cost of the fees within it. Yes, you pay service fees. Not all funds are created equal. Actively managed funds may come with high fees that eat into your returns, while low-cost index funds give you market-level growth without the hefty price tag. This also applies to if you’re adding money into your Roth or Regular IRA. Always check the fees. 

Quick Stack Tip: Over 30 years, a 1% fee could reduce your retirement savings by nearly 28%. Keep your stack strong by choosing low-fee funds when possible.

3. Diversify Your Fund Types

I wanted to add this to this newsletter because the funds are there in your retirement plan, but many don’t know what they mean. Building a solid retirement stack means diversifying your investments across different types of funds within your 401(k). This helps manage risk while still positioning yourself for growth. Here’s a breakdown of common fund types you should consider:

• Large-Cap Funds: These funds invest in well-established, large companies with a solid history of performance. They tend to be more stable and less volatile than small- or mid-cap funds, making them a great option if you prefer consistent growth over high-risk bets. Think of large-cap funds as your steady foundation in building a long-term stack.
• Aggressive Or Growth Funds: These funds aim for higher returns by investing in companies with high growth potential, but they come with more risk. If you’re younger or have more years to invest before retirement, aggressive funds can help boost your overall growth. Just be prepared for some fluctuations along the way.
• Bond Funds (Fixed-Income Funds): Bond funds offer more conservative growth and help balance the riskier parts of your 401(k) portfolio. They invest in government or corporate bonds, making them ideal if you’re closer to retirement or prefer a lower-risk approach.
• Small- and Mid-Cap Funds: These funds invest in smaller companies, which tend to grow faster but also have higher volatility. These are higher-risk, higher-reward investments that can add some spice to your portfolio if you're comfortable with market swings.
• Target-Date Funds: A popular "set-it-and-forget-it" option, target-date funds automatically adjust your mix of stocks and bonds as you approach retirement. They offer convenience but may become too aggressive or conservative for your personal risk tolerance, so it’s important to review them regularly.

Quick Stack Tip: Diversifying your 401(k) across these different types of funds ensures you’re not putting all your eggs in one basket. A balanced mix of large-cap, aggressive, and bond funds can help you grow your retirement stack while managing risk.

4. Review Your Fees

Just like there’s an app for that, there’s fees for everything! Fees are silent stack killers! Check your 401(k) for hidden management fees. Small percentages can add up over time and shrink your final stack. If you’re using another financial planner to help manage your funds, I wrote about how those could add up as well. 

Quick Stack Tip: Always review your plan’s expense ratios and look for low-cost funds to preserve your hard-earned savings.

Want to read a book about retooling your retirement planning? This one I recommend, hands down!

5. Another Income Stream: Roth vs. Traditional 401(k)

Not sure whether to contribute to a Roth IRA or a Traditional IRA (I like to call them Regular IRAs)? They can become another income stream to float your funds in retirement. Here’s a quick breakdown:

• A Roth IRA allows you to pay taxes now, meaning your withdrawals in retirement are tax-free. This is ideal if you expect to be in a higher tax bracket when you retire or want to avoid paying taxes on your growth later. Make sure to check the income limits, as they can affect your eligibility to contribute to a Roth IRA.
• A Traditional IRA lets you defer taxes now, allowing you to reduce your taxable income today, but you’ll pay taxes when you withdraw the funds during retirement. This option might be better if you think you’ll be in a lower tax bracket in retirement or want an immediate tax break.

Bonus Tip: Have an old 401(k) or Health Savings Account (HSA) from a previous job? Consider rolling them over into a Regular or Roth IRA. This can help simplify your retirement savings while keeping all your funds working toward your financial goals. Plus, when you hit the contribution limits for your 401K/403B, move those contributions into your IRA AND invest them!

Quick Stack Tip: While 75% of participants only use traditional 401(k)s or IRAs, diversifying between a Roth and a Traditional IRA can give you more flexibility and tax advantages in retirement.

6. Use Your HSA As Part Of Your Stack

Your Health Savings Account (HSA) is more than just a tool for medical expenses—it can be part of your retirement stack! Contributions are tax-deductible, the money grows tax-free, and after 65, you can use it for non-medical expenses (taxed as income). Want to learn more about HSA contributions and investing them to develop another income stream for retirement? Learn about them here. 

Quick Stack Tip: With healthcare costs in retirement estimated at $315,000 per couple, using an HSA alongside your 401(k) is a great tax-efficient strategy.

7. Keep An Eye On Your Target-Date Fund

Target Dates give the energy of the “Class of 2060”, but for your retirement! Target-date funds can simplify your investment strategy, but they aren’t one-size-fits-all. Call HR to ask more about these funds and the others within your retirement. These funds adjust as you near retirement, but they may be too aggressive or too conservative depending on your goals.

Quick Stack Tip:  Target-date funds hold $3.5 trillion in assets, but make sure they match your risk tolerance and timeline.

8. Understand the Power of Asset Allocation

The way your 401(k) is allocated can make or break your returns. The rule of thumb is to go heavier in stocks when you’re younger (higher growth potential) and slowly shift towards bonds as you near retirement. The right balance of stocks, bonds, and cash in your portfolio should reflect both your age and comfort with risk.

Quick Stack Tip: 66% of 401(k) participants are not properly diversified, leaving their portfolios exposed to unnecessary risk. Make sure to rebalance your allocation periodically to stay on track.

9. Leverage The Power Of Compounding

Even if you’re not maxing out your 401(k), the magic of compound interest can still work in your favor. The sooner you start, the longer your money has to grow. Every dollar you contribute now can multiply through compound returns, which means the earlier you begin, the more impactful even small contributions will be.

Quick Stack Tip: A person who contributes $100 per month from age 25 to 65 at a 7% annual return will end up with more than $265,000. Waiting just 10 years to start contributing can reduce that balance by nearly half.

10. Check For Automatic Rebalancing

If you're not keen on manually adjusting your asset allocation, check if your 401(k) plan offers automatic rebalancing. This feature will automatically adjust your investments to maintain your preferred allocation, ensuring you don’t drift into riskier territory as markets fluctuate.

Quick Stack Tip: According to Fidelity, 11% of 401(k) participants use automatic rebalancing. This feature can help keep your portfolio aligned with your goals, reducing the risk of being overexposed to more volatile assets as the market shifts. If you’re not manually rebalancing your investments, make sure to activate this feature!

These 10 things will help you when it comes to rethinking your retirement planning - not just what you’re doing now, but how that will compound into what you will do later in retirement. 

Building your retirement stack is about more than just maxing out contributions—it’s about optimizing what you can contribute and making smart choices with your investments. As you think about your future, these steps will help you get the most out of your 401(k) and build a solid financial foundation for retirement.

Need help strategizing your 401(k) contributions or overall financial plan? I’m here to help you maximize your retirement stack. Let’s chat!