It used to be that Americans' greatest concern about retirement was being healthy enough to enjoy it. But these days, most folks are just as concerned about being able to finance a retirement that could last 20 to 30 years. In a recent survey, more than two-thirds (68%) of respondents said they consider making the best 401(k) investment choices a key priority - even more so than staying in shape (59%). And 73 percent said they'd rather gain 15 percent in their 401(k) account balance than lose 15 pounds.*
These participants clearly recognize the importance of the 401(k) plan as a critical tool in helping them work toward their retirement goals. In fact, 59 percent said their 401(k) is their only or largest source of retirement savings, and only one in five said they would be confident in their ability to save for retirement without a 401(k) plan. With so much at stake, it's important to keep your 401(k) in peak shape. Following are my top tips for flexing your financial muscles with the goal of staying on track for a comfortable retirement:
Call in Your "Trainer"
No doubt, 401(k) investing can be confusing. Nearly half of the respondents in the same survey reported that materials explaining their 401(k) plan investments are more confusing than materials explaining their health benefits. Fortunately, for many of us there are professionals available to help with 401(k) investment choices for our unique situations.
You'd probably be more confident in your workout if you had help from a personal trainer, and the same principle applies to your 401(k). About three-quarters of the survey respondents said they would be very or extremely confident in their ability to make the right investment decisions with the help of a financial professional, versus only 44 percent who would feel that same level of confidence on their own. While it is encouraging that participants understand the importance of professional 401(k) advice, just 12 percent of those with access to it are actually using it - meaning the vast majority are missing out on critical guidance. If you're lucky enough to have a 401(k) plan that includes these advice services, consider taking advantage.
There are some pretty hefty benefits associated with professional 401(k) advice. Research from Morningstar Associates, LLC** suggests that participants receiving advice as part of a managed account service could end up with nearly 40 percent more income in retirement.
No-Sweat Investing
Like many Americans, inertia or discomfort might be holding you back from taking a more proactive approach to saving for retirement. That's why many employers are designing company 401(k) plans with features that do some of the heavy lifting for you. One of these features is auto-enrollment, which means that 401(k) contributions will automatically be withdrawn from your paycheck as soon as you are eligible. It's important to know if your company's plan employs this feature, because if not, you want to ensure you proactively sign up for the plan as soon as you meet the criteria.
Additionally, some plans utilize an automatic savings increase, bumping up your contributions by a certain percentage of your salary at specified intervals, such as when you get a raise or celebrate an anniversary with the company. This is especially critical, because even though you may recognize the importance of saving in your 401(k), you may not be saving enough. Only 58 percent of survey respondents said they know how much they need to have saved for retirement and close to 30 percent have made no changes to or actually decreased the amount they are contributing to their 401(k) account over the past two years, which could significantly derail their savings. If your employer is looking out for you with an automatic savings increase, think about letting them. If this isn't an option, be sure to gradually ramp up your savings rate. If available, the professional advice I mentioned before can likely help you determine an appropriate savings level at each stage of your career, as well as suggest investments that could meet your risk tolerance and savings timeline.
It's a Marathon, Not a Sprint
With all the recent market volatility, you may be wondering what, if anything, you should be doing with your retirement savings. Remember this: panic is not an investment strategy. Your 401(k) is an investment that will span the course of your career, so making changes based on periods of market volatility isn't a sound long-term game plan.
That said, this period of market tumult is a good time to check up on your account, as swings in the market might leave certain asset classes overweighed and others underweighted. Check that you still have the right mix of asset classes to give you the balance of potential growth and risk appropriate to your situation. If not, you may find that now is an appropriate time to rebalance.
While 401(k) investing may seem tricky, your approach to it can be streamlined. Approach financial fitness the way you would physical fitness: make a plan, stick with it, and don't be afraid to ask for help as you go. There are bound to be hurdles along the way, but look for resources to guide you. Remember, a healthy 401(k) could be your ticket to a comfortable retirement.
--
*2015 401(k) Participant Survey conducted by Koski Research for Schwab Retirement Plan Services, Inc. Koski Research is not affiliated with Schwab Retirement Plan Services, Inc.
** This figure represents the potential wealth increase an average 25-year-old could have at retirement when using a managed accounts service versus an average 25-year-old that did not use a managed accounts service. The analysis is based on 58,444 participants who used the Morningstar® Retirement ManagerSM service between the dates of January 2006 and February 2014.
Morningstar Associates is not affiliated with Schwab Retirement Plan Services, Inc.
©2015 Schwab Retirement Plan Services, Inc. All rights reserved. 0915-5834