10 Ways to Improve Your 401(k) Plan!

Your 401(k) plan may be your largest asset, even larger than your home.  However, it appears most individuals pay little attention to this treasured asset.  In my experience working with 401(k) providers, companies and several employees sign up for their plan without giving much thought to their contribution amount or investment choices.   To increase your odds for a successful and confident retirement take time and get advice on setting up your plan.

According to the Employee Benefits Research Institute 18% of workers feel very confident about their ability to enjoy a comfortable retirement a number that hasn’t changed since 1993.[1]   What about the remaining 82%?  82% of the working population aren’t confident about the future of their retirement.

Here are few ideas to help you improve your 401(k) plan and your retirement.

Start.  Do not delay in signing up for your company retirement plan.  As soon as you’re eligible for your company 401(k), sign on the dotted line and start contributing to your plan.  The sooner you start contributing to your plan the larger your retirement nest egg will be.

Max Out.  You can contribute $18,000 to your plan each year.  If you’re 50 or older, you can contribute an extra $6,000 to your plan for a total of $24,000.  Contributing $18,000 for 45 years at 7% will grow to $5.1 million by the time you’re ready to retire.

Contribute.  If you can’t afford to max out your contribution, contribute 10% of your income to the plan.  If you can’t contribute 10%, then match your company match.  If your company matches 4%, your contribution level should be 4%.  If you earn $50,000 per year, your 10% contribution will be $5,000.  Contributing $5,000 to your plan for 45 years growing at 7%, will be worth $1.4 million at your retirement.

Escalate.  Your plan may include an auto-escalation button allowing you to increase your contribution percentage annually.  For example, if you start contributing 4% to your plan, you can sign up for an annual 1% increase forever or until it reaches a pre-determined percentage.  Your contribution this year will be 4% and next year it will increase to 5% and so on.

Diversify.  Your plan probably has six to seven investment categories like large companies, small companies, international companies, alternative investments, bonds and cash.  To be successful, you’ll need to own more growth investments than safe investments.  A 70%/30% allocation might look like this:  35% to large companies, 10% to small companies, 20% to international companies, 5% to alternative investments and 30% to bonds.  You don’t need to allocate any money to cash unless you’re retiring this year.

Be Aggressive.  Your working career may span 45 years or more so take advantage of the long-term trend of the stock market.  Also, you’ll be contributing to your 401(k) every two weeks giving you the opportunity to buy stocks when they’re up, down and sideways.  I once worked with a group of anesthesiologists in Austin and, not surprisingly, the doctors with the most aggressive investment profile had the largest account balances.  Some of the senior doctors I worked with had invested 100% of the 401(k)-balance invested in stocks when they were young and they never changed their asset allocation resulting in large nest eggs.

Rebalance.  Rebalancing your 401(k) once per year will keep your desired risk level in tack.  The best time to rebalance your plan is in January.  A January rebalance will allow the dividends, interest payments and capital gains to be contributed to your plan from the previous year.  Your plan might have an automatic rebalancing button you can turn on when you log in to your plan.

Align.  It’s important for your contributions, asset allocation and rebalancing targets to be aligned.  For example, if you’re contributing 35% to large companies, your asset allocation and rebalancing options should also be set to 35%.

Stay.  In the gig economy workers are changing jobs every two to three years and, as a result, they may be hurting their retirement plan.  By moving from one company to the next you’re leaving valuable dollars on the table by missing a company match or two.  In addition, when you join a new company you may miss an enrollment window keeping you out of your new company plan for six months to a year.  These small misses will have major implications on your retirement.  If you’re employed by a good company with a solid retirement plan, then stay the course and let your retirement benefits accrue for you and your family.

Review.  You should review your plan and investment choices once per year.  You don’t need to spend much more time on your plan beyond your annual review.  In fact, the less you touch your plan the better.

Treat your treasured asset with respect by contributing what you can afford, investing for growth and rebalancing annually.   Allocating time and resources to your plan will allow you to have a much more bountiful retirement.

You can be young without money but you can’t be old without it. ~ Tennessee Williams.

Bill Parrot is the President and CEO of Parrott Wealth Management.  If you need help with your retirement planning, please visit www.parrottwealth.com.

September 30, 2017








[1] http://www.marketwatch.com/story/what-ive-learned-over-14-years-of-covering-the-depressing-but-crucial-topic-of-retirement-2017-09-29, Robert Powell, 9/29/17.

How Much Money Do You Need for Retirement?

Trying to identify how much money is needed for a comfortable retirement remains a mystery for most individuals.   As Baby Boomers, Gen X, Gen Y and Millennials march towards retirement, the retirement dream seems harder to obtain.  Individuals don’t have much faith in their retirement planning because they’re not sure how to calculate the amount of money needed for a sustainable retirement.

Do you know how much money you’ll need for your retirement?  Fear not because I’ll walk you through my three-minute retirement plan calculation.

The first step in determining how much money you’ll need for your retirement is to identify your annual household expenses.   If you’re not sure how much money you spend on your expenses, start today by reviewing your bank and credit card statements.

The second step in this process is to multiply your household expenses by 25.  If your household expenses are $100,000 per year, then multiply this number by 25 to arrive at $2,500,000.   Your retirement asset goal is $2.5 million and you can retire today if you’re blessed with this level of assets.  We can’t stop here, however, because you may have other sources of retirement income.

The next step is to subtract your Social Security benefit from your household expenses. If your annual Social Security benefit is $25,000, subtract this benefit number from your household expenses.  Your adjusted expense number is now $75,000.   Multiply $75,000 by 25 to get $1.875 million.   Your Social Security benefit has reduced your retirement asset goal from $2.5 million to $1.875 million.

Few workers today have the benefit of receiving a pension plan but if you do, subtract this number from your expenses and Social Security benefit number.   If you’re going to receive $20,000 in annual pension payments, subtract it from your $100,000 household expenses and $25,000 Social Security benefit.  Your net expense number is now $55,000. Multiplying $55,000 by 25 gives you $1.375 million.  Your new retirement asset goal is $1.375 million.

Here is the math:

Household Expenses = $100,000

Social Security Benefit = $25,000

Pension = $20,000

Household Expenses (A) Social Security Benefit (B) Pension Plan (C) Adjusted Expense Number

(A-B-C) = D

Multiplier (E) Retirement Asset Goal (D x E)
$100,000 $25,000 $20,000 $55,000 25 $1,375,000

Inflation, of course, will play a big part in your future retirement calculation.   $100,000 in expenses today will balloon to over $209,000 in thirty years with a 2.5% inflation rate.  As your expenses double because of inflation so, too, will the assets you need to retire.

Here is a chart to help you with your inflation adjusted retirement calculation.

Age Inflation Factor Expenses Today Future Value Calculation Multiple Assets Needed
40 1.85 $100,000 $185,000 25 $4,625,000
45 1.64 $100,000 $164,000 25 $4,100,000
50 1.45 $100,000 $145,000 25 $3,625,000
55 1.28 $100,000 $128,000 25 $3,200,000
60 1.13 $100,000 $113,000 25 $2,825,000
65 1 $100,000 $100,000 25 $2,500,000

Once you’ve identified your retirement number you can adjust your planning and investing to help get you closer to your retirement goal.  Now that you know your target retirement number you can compare it to your current level of assets.  If you have more assets than you need, you can retire at any time.  If your assets are currently below your retirement number, keep saving and investing so you can surpass your goal.

I hope this simple, three-minute financial plan gives you a better picture of your retirement planning needs.

There’s never enough time to do all the nothing you want. ~ Bill Watterson, Calvin and Hobbes.

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.  For more information on retirement planning, please visit www.parrottwealth.com.

September 28, 2017







Can You Take Care of My Pets When I Die?

Leona Helmsley died in 2007 and she left a majority of her $12 million estate to her dog, Trouble.[1]   My dog will not be as fortunate.   According to the American Pets Products Association, Americans spend $60.5 billion on their pets annually.[2]  We love our pets dearly and spend lavishly on them while we’re living but how about after we die?  What happens to our pets when we die and do we need to include them in our estate plan?  Yes, I’d recommend including pets in the family will or trust.

Ideally your beloved pets will be cared for by a friend or family member, however, make sure to check with the individual prior to including their name in your will.  It might come as a shock for some to find out they’re inheriting your dog and not your Porsche.   What if you can’t find someone willing to inherit your family pet?  If you don’t have someone to take care of your pet after your gone, you can contact an organization like the Pet Survivor Care Program (PSCP) to assist you with their care.   The PSCP will take care of your pet and help them find a new home.[3]

Your friends might not have a problem inheriting a lap dog, but what if you own horses or other large animals?  If you own horses, an equine attorney can assist you in drafting a trust for their care.[4]  A large animal vet can be a resource to help you find a home for your cows, pigs, or goats.

Birds, fish and guinea pigs may be easier to house than a horse but they still have their own issues.  I owned a guinea pig growing up and it was loud and messy and her name was lettuce.  We had to give lettuce some lettuce so lettuce would let us sleep at night.

Snakes, turtles and other reptiles can be a thorny issue once you pass away.  Before you purchase a rattlesnake or snapping turtle, consult with your local pet store, fish and game department or herpetological society about how best to care for and dispose of your exotic pet.  Your local animal shelter probably won’t care for this type of pet after you pass, so you’ll need to make alternative arrangements for their care in your estate plan.

Regardless if your pet is large, small or exotic, here a few things to consider.

  1. Think before you buy. Becoming a pet owner is a tremendous responsibility so spend time planning for their care once you’re gone.
  2. If you include your pet in your estate plan, name a trustee to care for your pets. Don’t leave money or property in the name of your pet because your trustee will have the authority to care for them long after you’re gone.
  3. Leave enough money, but not too much money, to your trustee so they have the proper resources to care for your animals especially if you own larger animals like horses.
  4. If your pet dies before you do, update your estate plan so they’re not included in your plan.
  5. Think long term. The pet you purchase can live for a long time.  A Parrot can live for fifty years while turtles can remain active for a hundred years or more.   Horses, dogs and cats can live beyond fifteen to twenty years.

Pets bring great joy to owners so we owe it to them to make sure they’re provided for long after we’re gone.   A thoughtful estate plan can be purr-fect for your beloved pet!

My roommate got a pet elephant. Then it got lost. It’s in the apartment somewhere. ~ Steven Wright.

Take with you seven pairs of every kind of clean animal… ~ Genesis 7:2.

Bill Parrott is the president and CEO of Parrott Wealth Management, LLC.  For more information on financial planning and investment management, please visit www.parrottwealth.com.

September 14, 2017
[1] http://abcnews.go.com/US/leona-helmsleys-dog-trouble-richest-world-dies-12/story?id=13810168, Susan Donaldson James, 6/10/2011.

[2] https://www.learnvest.com/2016/02/americas-pets-by-the-numbers-how-much-we-spend-on-our-animal-friends, Amelia Josephson, 2/15/2016.

[3] http://spca.bc.ca/donate/leave-money-in-your-will/pet-survivor-care/

[4] http://www.hodgsonruss.com/newsroom-publications-7611.html

Say What?

I spent most of my youth playing football.  I played football in junior high, high school and college.  Our playbooks included diagrams and words not legible to the lay person. Some of the plays were “I right 30 trap”, “trips right 382”, or “Alabama 99.”  Each play had a different meaning.  After the play was called we all knew our specific assignment.    The language became second nature to everyone on the team because we practiced them constantly.

My friends and I would play pickup games at the park when we weren’t playing organized football.   The play calling for these games was simple and clear.   I might tell Steve to run towards the hippo water fountain and Randy to run at the rocket.   Dave might run to the dead grass spot and then towards the swing set.

Watching CNBC this past week I was amused and horrified with the language used to describe various investments and investment strategies.   Here is a sample.

  1. “We are tactically allocating our risk assets to deliver alpha to our high net worth clients by purchasing high beta cyclical names.” What?   Here is my interpretation of what was said, “We are buying profitable stocks so we can make money for our clients.”
  2. “We are removing risk assets from our satellite portfolio by purchasing low volatility, negatively correlated assets.” Huh?  I would have said we’re buying bonds.
  3. “We’re going to deleverage our non-liquid, alternative assets and transition the proceeds to our short-term liquid account.” Come again?  I think they meant to say they’re selling assets and then depositing the money into their cash account.

Wall Street lingo is designed to confuse the masses.  The wolves use big words and fancy wrappers to sell high commission products to the sheep.  At the end of the day folks there are only three things you can do with your money.  You can invest for growth, income or safety.    If you’re investing for growth, buy stocks.   If you need income, buy bonds.  If you crave safety, keep your money in cash.

As you construct your portfolio ask yourself what investments are needed to achieve your goals.  Focus on simple investment strategies with clear language and hold them for the long haul.  Capisce?

If as one people speaking the same language they have begun to do this, then nothing they plan to do will be impossible for them.  Come, let us go down and confuse their language so they will not understand each other. Genesis 11:6-7

Bill Parrott is the President and CEO of Parrott Wealth Management and is a fan of the simple.  If you want more information on financial planning or investment management please visit www.parrottwealth.com.

April 13, 2017


My Dog’s Life.

On most mornings, I embark on a five-mile run with my dog Cricket.  Cricket is a five-year-old yellow lab who loves running.  Our morning ritual starts when I finish reading my daily dose of financial publications like the Wall Street Journal, Barron’s and Morningstar.   When I remove my glasses, and shut my iPad case Cricket knows it’s time to hit the streets. With her leash in my hand she starts to get excessively excited and run around in circles.  Once the front door is ajar she shoots into the yard like a bottle rocket.  I let her run off leash for a while to burn off some excess energy.

A short while later we’re reunited and I attach her leash to settle into our run.  Cricket knows where all the dogs live on our route and occasionally will try to veer off course and say hello.  In addition to the neighborhood dogs, there are a multitude of distractions like squirrels, birds or cats.  Cricket will give them a slight nod and then continue on her way.  She’s never too concerned about what’s behind her and typically focuses on the road ahead.

When we arrive at the park I’ll let her off leash so she can cut loose.   Back on the leash we head towards main drag and run with the flow of traffic.   When we’re outbound Cricket will run slightly behind me and then when we turn for home she’ll lead the way.   Once home, she is treated with a snack.   After her snack, she’ll drink her water and then head for bed where she’ll sleep for the next eight hours.   A good life for sure!

What can Miss. Cricket teach us about investing?   Here are few ideas we can learn from my favorite running partner.

  1. Rituals are important. An automated investment plan mixed in with an annual rebalance will treat you well over the long term.   Cricket’s morning ritual rarely changes and she’s a happy, healthy dog.   For example, investing $10,000 into the Dimensional Core Equity I fund (DFEOX) ten years ago, and investing $100 per month is now worth over $42,000 generating an average annual return of 8.86%.[1]
  2. Avoid distractions. Squirrels, birds and other dogs try to derail Cricket from her objective but she stays focused and runs on.   Investors today are bombarded with distractions from tweets, posts, chats and snaps.  The individual investor today is under attack 24/7.   Give your distraction a quick look and then move on to your goal.   If you let your distractions get the better of you, you’ll lose in the end.  The Fidelity Magellan fund is a solid long-term performer.  During the last ten years, the fund averaged an annual return of 5.29%.  However, investors in this same fund averaged one-half percent (.57%)![2]  Investors who were distracted by outside noise moved in and out of this fund.  If they had stayed invested, they’d have improved their returns dramatically.
  3. Enjoy the treats. Cricket knows when she returns home she gets a dog-treat.  As an investor, it’s suitable to take some money off the table and enjoy life.  If you’ve accumulated a nice nest egg, crack it open and spend some money.   Is it time to take your dream vacation?  Have you always wanted to own a second home?  Do you feel called to donate to your favorite charity?  After all, you can’t take it with you when you pass away.
  4. Sleep tight. Cricket sleeps like a rock without a care in the world.   If your investment portfolio is keeping you up at night and you can’t sleep, sell some stocks to reduce the risk in your portfolio.  You need to reduce your risk exposure to your sleeping level.

It’s time to follow Cricket’s lead.   To be a better investor focus on your investments, avoid the distractions and align your portfolio with your financial goals.

Happiness is a warm puppy. ~ Charles M. Schulz

God made the wild animals according to their kinds, the livestock according to their kinds, and all the creatures that move along the ground according to their kinds. And God saw that it was good. ~ Genesis 1:25

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.  For more information on financial planning and investment management please visit www.parrottwealth.com.

Note: Past returns are not an indication of future performance.  Your returns may be more or less than those posted in this blog.

February 27, 2017


[1] Morningstar Office Hypothetical Tool, DFA Core Equity I, January 1, 2007 to January 31, 2017.

[2] Morningstar Office Fidelity Magellan Mutual Fund report dated 1/31/2017.