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MFS Lifetime Funds

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MFS Lifetime Funds – Your Defensive Approach to Retirement Savings

In my last post, I mentioned I’d be writing about a Target Date alternative that’s well-suited for those of you whose top concern is market volatility as you approach retirement. If that’s you, the MFS Lifetime Funds may be the perfect choice. They are deliberately designed to prioritize protecting your hard-earned savings as you close in on the retirement “finish line.”

The Glide Path – Designed for Your Evolving Risk Tolerance

One of the biggest advantages of the MFS Lifetime Funds is their conservative positioning in the years just before and after retirement. Their unique glide path illustrates a thoughtful transition from an aggressive, growth-oriented stance early on to a defensive, risk-minimizing approach as investors get closer to retiring. It is truly one-of-a-kind, shaped more like a hockey stick than the conventional linear equity glide paths of competitor target date funds.

Picture the MFS glide path like the race strategy for a marathon runner. Early on, the approach is aggressive – going all-out to build a solid lead. But as you get closer to the finish, the strategy shifts. Now the focus is on pacing yourself, managing your effort, and avoiding any risks that could jeopardize crossing that final line successfully after all those miles.

Broad Diversification Across Sub-Asset Classes

In addition to the defensive glide path, what stands out the most to me about the MFS Lifetime Funds is their extensive sub-asset class diversification. This diversification allows the MFS Lifetime Funds to optimize their risk and return profiles at each point along the glide path based on an investor’s specific stage in the retirement investing race. In the early accumulation phase, they can truly swing for the fences by loading up on small caps, emerging markets, and other high-upside assets. As you get closer to retirement though, the mix shifts to emphasize large cap high-quality defensive equities and investment-grade debt positions designed to prioritize capital preservation.

This conservative asset allocation mix makes the MFS Lifetime Funds an excellent choice for risk-averse investors concerned about potential market volatility derailing their nest egg in the crucial pre- and post-retirement years when they are most reliant on their accumulated savings.

A Focus on Managing Risk, Not Chasing Returns

While the glide path design and wide-ranging diversification are strong foundational elements of the MFS Lifetime Funds perhaps the most important process the management team implements comes from’ their dedication to continual active risk oversight and management, especially for conservative investors.

It’s the classic “defense wins championships” mentality. The Lifetime Funds use a similar philosophy, rigorously managing risk across all their underlying funds and the total portfolio. This emphasis on capital preservation over returns-chasing, especially as investors approach retirement, truly sets these funds apart as a trusted choice for the risk-conscious saver.

The Bottom Line

While the glide path design and extensive diversification are both valuable assets, perhaps the biggest differentiator is the intense emphasis MFS places on active risk management throughout your retirement investment journey.

Their unique glide path transitions you from an aggressive offensive approach early to a disciplined, risk-focused defensive stance when it matters most. Their robust active management ensures your exposure stays on plan and avoids unnecessary risks. And their combination of experienced leadership and a deep, diversified bench allows them to seamlessly adapt their lineup to match any market “opponent.”

So, if you’re that conservative investor worried about market storms disrupting your retirement dreams after years of diligent saving and investing, give the MFS Lifetime Funds a long look. With their unique approach, you can head into your golden years confident that your nest egg will be secure, knowing that it is being protected by a true risk-management champion every step of the way.

Next up, a few words for those of you may prefer a low cost passive index approach to Target Date retirement investing.

Target Date

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Target Date Funds Can Be Your Winning Play for a Fun-Filled Retirement

What are Target Date Funds?

A target date fund (TDF) is much like having an investing coach to help you win the retirement game. These mutual funds automatically adjust your portfolio’s asset allocation over time based on a selected target retirement date, usually age 65. As you near retirement, the fund shifts to more conservative investments to reduce your exposure to market risk. It’s a convenient “set it and forget it” strategy.

How Do Target Date Funds Work?

Picture your retirement journey as a marathon race. Target Date Funds follow a stock “glide path” over time. “To” glide paths sprint to the finish line, quickly adjusting asset allocation to a conservative retirement portfolio at the target retirement date. “Through” glide paths, on the other hand, take a steadier approach. They reduce stock allocations gradually for several years after your reach your retirement finish line. These funds are geared for you to have a longer fun-filled retirement.

Target Date Funds use different approaches to winning the retirement game, just like sports teams. Active fund managers shift assets aiming for big plays to outperform the market. Passively managed funds mirror market indexes while keeping fees low. Hybrid funds mix it up, like all-around athletes in the Olympic decathlon by aiming for a sweet spot between cost and performance.

A key benefit of Target Date Funds is built-in diversification across stocks, bonds, real estate and more. This approach acts as a shock absorber against stock market swings. Just like playing defense in sports, managing risk is essential in Target Date Funds. However, some TDFs spread risk better than others through greater diversification so it’s worth comparing asset allocations between fund families.

Target Date Funds and Your 401(k) or 403(b)

Your 401(k) plan likely offers Target Date Funds as a default option. If you don’t choose your own investments, your money automatically lands in the fund closest to the year you’ll turn 65 – your ‘default’ retirement date. While TDFs are a convenient “set it and forget it” approach for those who prefer off-field pursuits, they may not fully align with your risk tolerance and personal retirement goals.

Pros and Cons of Target Date Funds

The advantages of using Target Date Funds include simplicity, professional management, diversification, and gradual reduction in risk over time as you get closer to retirement. It’s like having a coach handling your retirement game plan. However, the drawbacks center around the one-size-fits-all approach, limited investor control, and varying fees.

Selecting a Target Date Fund

Choose a TDF that uses a style that fits your risk tolerance and aligns with your comfort zone. When selecting a TDF, weigh factors like the equity glide path details, historical performance and consistency, risk exposure and fee structure. The goal is finding the best fit target date fund for your situation at a reasonable cost. Sometimes, it pays to have a good coach.

The Bottom Line: Scoring Big for Your Financial Future

Target date funds simplify investing for retirement by automatically adjusting diversified portfolios as you get closer to retirement. TDFs deliver a strategic game plan for retirement, with the potential to score big points for your financial future. Like a seasoned athlete, TDFs adapt to changing conditions, helping you stay in the game and achieve your retirement goals. So, if you’re not up for choosing your own investments, let a Target Date Fund take you on a winning journey toward a fun-filled retirement.

For a more in-depth look at Target Date Funds click over to our Target Date Funds Page. I’ll write about some of my favorite Target Date Funds in future posts.

Saving for Retirement

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A Fun Guide on Saving for Retirement

Do you daydream about retiring early and traveling the world? Or are you worried you won’t have enough money saved to ever retire at all? Either way, planning for retirement may seem boring or stressful. But it doesn’t have to be! This fun guide breaks down the most common retirement accounts, how to optimize them, and tips to help you save for the future retirement of your dreams.

Tax-Advantaged Accounts to the Rescue

First things first, you’ll want to take advantage of accounts that give your savings a little tax break to grow faster. With 401(k)s for private sector employees and 403(b)s for non-profit personnel, you can score big by contributing pre-tax dollars straight from your paycheck. It’s like intercepting a portion of your income before it even hits your bank account. Plus, many employers offer matching contributions, which is like getting a bonus touchdown pass thrown right into your retirement fund!

Whether you have a retirement savings plan at work or not you may also want to contribute to an IRA (Individual Retirement Accounts). These accounts come in two flavors: Traditional and Roth. Traditional IRAs are like playing the long game, deferring taxes until you make withdrawals in retirement. On the other hand, think of Roth IRAs as your short game where you pay taxes upfront but enjoy tax-free withdrawals down the road.

Maxing Out Contributions

Want to supercharge your retirement savings? Aim to max out your contributions to your employer-sponsored plan and IRAs. Just like professional sports teams have a salary cap when building their rosters there are limits to the amount of money you can stash away in retirement accounts. Please note that you may not be able to contribute to an IRA if you are covered by a workplace retirement plan. Your eligibility phases out starting at $77,000 for single taxpayers and $123,000 for married couples filing jointly.

401(k) Plans:

In 2023, the contribution limit for employees participating in 401(k) or 403(b) plans was $22,500. That limit increase to $23,000 in 2024.

Traditional and Roth IRAs:

In 2023, the annual contribution limit for IRAs was $6,500 for individuals under the age of 50. That limit increase to $7,000 in 2024.

Catch-Up Contributions:

For you veteran players, individuals aged 50 and over, the catch-up contribution limit of $1,000 for IRAs in 2023 is holding steady in 2024.

Same thing for employees aged 50 and over participating in 401(k) or 403(b) plans. The catch-up contribution limit sits at $7,500 for 2023 and 2024. Therefore, participants in these plans who are 50 and older can contribute up to $30,500 starting in 2024.

Consistency is Key

Championship dynasties are built on consistent coaching and player development over time, not quick fixes. By setting up automatic contributions every month you steadily build your investment portfolio. Compounding works like athletic training – today’s small fitness gains accumulate into huge performance ability over years of focused effort. The key is continuing to invest regularly because market drops mean your ongoing contributions buy more shares. This allows you to ride the next wave back up over long periods of time. Taking advantage of compound growth and down markets sets your savings up for success.

Keep Your Eye on the Prize – Retirement Readiness

Don’t wait until the two-minute warning to start saving for retirement. Time is your biggest ally when it comes to building wealth. Even small contributions can grow into a retirement touchdown thanks to the magic of compound interest. So, lace up those cleats and start socking away cash as soon as possible. Your future self will thank you for it!

What does your dream retirement include? Picture yourself already there, living life on your own terms, as you take small steps today to make that a reality someday. Remember, retirement savings is a marathon, not a sprint. So, find a strategy that works for you, stay disciplined, and keep your eyes on the prize – that retirement freedom where every day feels like game day!

Turbocharge Your Retirement Savings in 2024

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Secure Act 2.0 and Inflation Indexing

Secure Act 2.0 unleashes several key changes directly benefiting individuals like you. If you’re a fan of boosting your savings game, here are some game winning strategies. We will dive into the key changes that are set to redefine the retirement landscape in 2024 and beyond, but before we dive into the game-changers we will highlight the contribution limit increases already on in play thanks to the annual inflation adjustment.

Inflation: Growing Your Nest Egg Faster

Inflation isn’t just affecting your grocery bills; it’s also giving your retirement savings a boost! Here’s how inflation-indexed contribution limits for 2024 benefit you:

Traditional and Roth IRAs: Score big with a $7,000 touchdown this year, up from $6,500 in 2023. That’s an extra $500 to turn your retirement dreams into reality. In addition, if you are 50 and over still in the game, you can make a ‘Catch-Up’ contribution of $1,000. There are some limits on IRA and Roth IRA contributions based on your income, in particular if you are covered by a retirement plan at work, depending on your individual circumstances. More information on a potential curveball is available at the IRS website.

401(k) and 403(b) Plans: Max out at $23,000 in 2024, a jump from $22,500. Every dollar counts when compounding over time! And, if you are 50 and over, bring out the ‘Catch-Up’ play with an additional $7,500 contribution.

Secure Act 2.0: Revolutionizing Retirement Savings

This legislation isn’t just a catchy name; it’s a game-changer for your retirement journey. Let’s unpack the exciting additions:

Catch-Up Contributions on Steroids: Feeling behind in the game? Starting in 2025 ‘Catch-Up’ contributions for people aged 50 and over and still in the game will be indexed for inflation in IRAs and Roth IRAs too. And 2025 brings a turbo boost to retirement plan savings by raising the bar even higher for people ages 60-63 to a whopping $10,000 in 401(k) and 403(b) plans. Time to bridge the gap faster and level up your retirement savings game.

Roth 401(k) RMDs? Not Anymore! Love the idea of tax-free retirement income? Secure Act 2.0 makes it a reality by kicking mandatory distributions (RMDs) out of your Roth 401(k). Your money can grow tax-free, and you can pass it on to future generations without limitations. A game winning touchdown for generational wealth!

Later RMDs, Longer Growth: Secure Act 2.0 has already pushed the trigger age for Required Minimum Distributions (RMDs) to 73. It increases 75 for 2033. This translates to years of additional tax-deferred compounding, potentially boosting your long-term retirement income.

Oops, Missed an RMD? No Panic! Life happens, and sometimes RMDs slip through the cracks. Secure Act 2.0 understands! The penalty for missing an RMD has been reduced to 25%, with further reduction to 10% if you correct the oversight within a reasonable timeframe, however the IRS defines as ‘reasonable’. A breather for unintentional oversights – we’ve all been there.

Annuities on the Move: Need flexibility with your retirement income? Annuities are contracts that provide a stream of income for a specified period or for life. Starting in 2024, you will be able to transfer annuities without tax consequences or surrender charges. If your current retirement plan has an annuity option for retirement income you will now be able to easily roll it over into a plan sponsored by your new employer. This will enhance the portability and availability of annuities for retirement income.

Small Business, Big Benefits: Don’t work for a corporate giant? Worry not! New “Starter 401(k) plans” make offering and participating in retirement plans more accessible, even for the little guy. Secure your future, even if you’re the sole player on your team!

Your Next Steps: Seize the Moment!

With all these changes (and this is just the highlight reel), how do you navigate and maximize your retirement advantage? Feeling a bit overwhelmed? No worries, you can always consult a financial advisor – consider them your seasoned coach. Otherwise, subscribe to our newsletter, and I’ll be your guide through this retirement adventure. Remember, staying informed and taking control of your journey are the power moves for securing your financial future. Get ready to save and invest for a fun-filled retirement – it’s your time to shine on the retirement field!