When it comes to saving for retirement, you are your own best guide and advocate. Only you know what you want your retirement to look like, so you have to take responsibility for saving the money you need to make it happen just as you envision.
A University of Michigan study found the average 401(k) account has one trade every four years, which researchers dubbed “inattentive” management. “The difference between a well-invested account and one that’s not can be substantial, as much as 2% or more per year according to some studies,” says Celia Rafalko, a financial planner and CEO of Piedmont Independent Fiduciaries.
If you want to accumulate enough money by the time you’re ready to quit working, you need to educate yourself about retirement savings and avoid falling into a pattern of inattentive management. Consider tapping these sources of information.
Your HR Department
Your company’s human resources team can provide you with information about your company’s retirement plan including the matching contribution, if any, and the vesting schedule. They can also direct you to the retirement plan representative — and that’s about it.
The HR staff in most companies is not licensed to give you financial advice and doing so could make them liable for your investments, so the best they can do is present you with your options. It’s up to you to decide which of those best meets your needs.
The Retirement Plan Representative
“If your company offers a 401(k) or another retirement plan, it also has a plan representative. That representative is an excellent resource,” says Martin R. Durbin, CPA, and president of Gateway Financial Designs. When they make an on-site presentation at your office, you should definitely attend.
“The advisor should give not only general plan information but should also keep participants up to date on trends in the market, economy or certain types of investments of interest to participants,” Durbin says. “The advisor should try to manage expectations of participants to help prevent them from doing something as a short-term knee-jerk reaction to a routine ‘correction’ in the market.” Many advisors will also set aside at least one day a year to meet with plan participants one-on-one at the office, on company time, for 15 minutes or so if you need individual advice.
Your company’s retirement plan may also provide tools you can use on your own. Rafalko recommends visiting the plan’s website and using any calculators or any other educational resources available.
“Using online tools like risk assessments can help set up a better investment selection that, in turn, results in better returns,” she explains. “Also, many online sites have excellent tools to evaluate how much to contribute and the after-tax impact of the contribution.”
An Independent Financial Advisor
If your situation is unique or if you’re interested in additional information or options, you may want to hire an independent financial advisor.
“The benefit to seeking out help from a financial advisor, preferably an advisor with CFP (certified financial planner) credentials, will extend well beyond advice just limited to fund choices within their 401(k) plan,” says Chris Costello, a certified financial planner and co-founder of 401(k) management service Blooom. “A trusted financial advisor will also assist in areas of debt management, saving for retirement, saving for college and insurance coverage, just to name a few.”
Costello cautions against hiring a financial planner who gets paid by earning a commission from selling investments. These types of planners may have interests that run counter to yours. He recommends hiring an advisor who works for a registered investment adviser (RIA). In most cases, they’re paid a flat fee for their advice instead of taking a commission.