Squeezing More Juice Out of Your 401(k )Plan
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 401(k) or 403(b) 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:
1. Defer the maximum you can afford to defer each year.
2. If you can’t defer the maximum allowable, defer enough to benefit from 100% of your employer match (if you have one).
3. 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:
4. 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.
5. 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 401(k) plan (note: they will add 403(b) later in 2011). This website lists nearly 800,000 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.
6. 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.
7. Companies and Plan Administrators are being sued by disgruntled plan participants over fees or poor investment choices within a plan. Savvy law firms are trawling for poorly rated 401(k) plans they can go after on behalf of plaintiffs. An example is a March 2011 $18.2 million award levied against a plan sponsor for using excessively expensive retail mutual funds instead of lower cost, comparable institutional mutual funds.
Be a smart consumer and consider how you’d like your retirement dollars to be invested – in your own 401k or 403b 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!
Copyright © 2011 by Eve Kaplan
Eve Kaplan is a Fee-Only Certified Financial Planner in Berkeley Heights. Kaplan Financial Advisors is a Registered Investment Advisor in New Jersey and New York. Her firm provides 401k and 403b plans. She can be reached at 908-898-0549 or www.kaplanfinancialadvisors.com