By Eve Kaplan, CFP® Practitioner
If you’re like most Americans, you don’t have enough saved in your 401(k) or 403(b) plan to cover more than a few years of retirement expenses. Average retirement plan balances typically are no more than 1 or 2 years times average annual income….woefully inadequate to cover a 25+ year retirement period. Social security was never seen as something that could plug the hole left by insufficient 401k or 403b plan balances.
However, the 401(k) and 403(b) retirement landscape is rapidly changing so it’s not too late to squeeze more juice out of your 401(k) or 403(b) plan. Here are some steps to take –“common sense steps” and “taking it to the next level measures”:
“Common sense” steps to increase your 401(k) or 403(b) plan balance:
- Defer the maximum you can afford to defer each year.
- If you can’t defer the maximum allowable, defer enough to benefit from 100% of your employer match (if you have one).
- Don’t try to market time – stick with your portfolio (example: 60% stocks/40% bonds) through both up and down markets.
And now for the more challenging part – taking things to “the next level” to squeeze more juice out of your 401(k) or 403(b) plan:
- The government is shining a spotlight on fees and management abuses in the 401(k) and 403(b) industry. Dramatic changes will occur in 2012. Plan participants like you typically have NOT been aware you’re footing an extra 1-3% in fees per year. That translates into $1,000-$3,000 of hidden fees per year on a $100,000 plan balance. These fees soon will be disclosed on your 401(k) and 403(b )statements in dollar amounts. You may find your current 401(k )or 403(b) plan is excessively expensive.
- Do research on your own 401(k) plan to see if it’s “great,” “mediocre” or somewhere in between. We like www.brightscope.com because it allows you to review the quality of your plan. As you can see, BrightScope lists nearly hundreds of thousands of plans nationwide and assigns an objective rating. You can enter basic info (your age, your deferral amount, company name) to see how your current plan rates on a number of criteria: fees, quality of investments, company generosity, etc.
- If you don’t like what you see, contact the Plan Administrator at your company. He or she works for your employer and is responsible for selecting this plan (a board also may have been involved in this decision, but the Administrator is “the bucks stops here” person). Show him or her how your plan is rated, and ask if he or she is aware this information (not necessarily flattering to your company) is available to you and your colleagues.
- Companies and Plan Administrators are being sued by disgruntled plan participants over fees or poor investment choices within a plan. An example of the latter is a plan that allows a more expensive share class of a mutual fund to appear on the investment menu than a comparable (and less expensive) share class of that same mutual fund. Your company should sit up and pay attention when a plan participant like you questions why your company has this plan.
Be a smart consumer and consider how you’d like your retirement dollars to be invested – in your own 401(k)or 403(b) plan or in the pockets of expensive plan providers. If you have any questions about this, consider my firm to be an information resource. After all, it’s your money!