If Your 401(k) Could Talk…
If your retirement plan could talk, what would it say? Actuarial consultant Milliman imagines it would bring up 10 important points.
- Save More. Citing data from Fidelity showing an average account balance of $75,900, Milliman says employees are not saving enough for retirement.
- Figure Out How Much You Need for Retirement. Nearly 60% of those who have used a calculator to estimate required retirement savings say they save more as a result.
- Know What You Are Paying in Fees. Review what you are paying in fees regularly and take actions to reduce them when possible.
- Diversify. If too much of your savings is in one place, your account could be hit hard by losses in one investment, so diversify across different assets.
- Take Advantage of Compounding. Compounded returns can have a dramatic impact on your wealth by allowing you to earn profits on both your contributions and your investment gains.
- 401(k) Loans Are a Double-Edged Sword. When you borrow from a 401(k) plan, you are paying yourself back on an aftertax basis. When you retire and take distributions, you will pay taxes on that amount again.
- You May Not Be Entitled to Your Entire Account Balance. If your employer has a vesting period for contribution matches and you leave your job, you may forfeit the amount that has not fully vested.
- 401(k) Accounts Are Portable. When you leave a job, you can roll your old 401(k) plan to your new employer’s 401(k) plan or, if you prefer, to an individual retirement account.
- Tax Reform Could Affect Your 401(k) Plan. Congress could look to reduce or eliminate deductible contributions to retirement plans as part of a deficit reduction strategy. Congress did this before, in 1986.
- Buy Shares in Bulk. By combining employee contributions together, some 401(k) plans may be able to negotiate lower fund fees than would otherwise be available to you.
Source: “Ten Things Your 401(k) Wants You to Know,” Jinnie Regli, Milliman Insight, January 21, 2013.