How many of you get your quarterly 401(k) statement and briefly glance at it to see if your balance has gone up before your discard it into the trashcan at home. Or even worse, now that you have signed up for online paperless statements you sometimes just click the delete button because you don’t have the time to see how your 401(k) is doing. With the 401(k) plan quite possibly being the largest assets (outside of your home), how can you ignore what may be going on even if it feels like there is a never ending water problem you have in your financial basement.
Many Gen X’ers do not pay enough attention to their 401(k). With the last decade having been less than stellar in the stock market, I’m finding more and more of the ‘slacker’ generation acting just like that when it comes to staying on top of their most important asset to help them make work optional. Here are few important things you need to review every time you go through your 401(k) statement.
- What is your ‘personalized return’? – Many of the 401(k) companies will track and tell you how your 401(k) is performing. It’s important to remember that your 401(k) statement will show your employee contribution, your employer contributions (match/profit sharing), and market loss or gain. Make sure the 401(k) company is not using your money or your employer’s money in the personalized rate of return. Also, make sure they are showing the return as of each contribution and not just a simple calculation quarter over quarter. To know how you are doing, you need to know your return.
- What is your ‘allocation’? – Your company may change through several different providers when you participate to your 401(k). If your company makes a vendor change, they will essentially “MAP” your existing investment choices into either a) the choices that most closely match where your are today or b) into some type of target or age based fund based upon your current age. If you don’t go in and investigate your choices, this could adversely affect the performance of your account. Make sure you act your age when it comes to picking your allocation and make sure you turn on the automatic rebalancing features should your 401(k) provider offer it for you. If you don’t read your statements, a change of company 401(k) vendors may bypass you.
- What does it cost you? – Beginning the end of the 3rd quarter this year, there are new rules that will take effect so you can see the actual fees being charged on your 401(k) plan. Remember, that if your plan has very high fees it could cut substantially into your overall rate of return. You should ask your employer if they will offer a self directed brokerage account, a lower fee plan with exchange traded funds, or offer you in-service distributions before the age of 59 ½ so you can manage the money yourself. The first statement you get in October should be read very closely.
- When will you be vested and do you owe loans? – Paying attention to your vesting schedule is a smart thing to do. Sometimes employees leave jobs before their vesting schedule hits 100%, and this could cost you thousands of dollars in employer matches. Also, if you have taken a loan, be careful about the consequence to you if you leave your job or your job leaves you. I’m not a big fan in general in taking loans from your 401(k), but if you do keep a watchful eye on the payback schedule and when it will complete.
If you are between the age of 35 to 50, it may feel like you are behind where you should for an overall retirement plan because your 401(k) hasn’t been so automatic in the last 10 to 15 years. More than ever, it is your job to read your 401(k) statement and consult with a qualified 401(k) or financial advisor if you aren’t sure what to do.
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder of oXYGen Financial, Inc – The Leaders in Gen X & Y Financial Advice and Services
Visit to www.oxygenfinancial.net to request a free consultation with the leading financial experts for people in their 20’s, 30’s, and 40’s in the country.
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