Smart401k's  Instablog

It’s the New Year now, which officially marks the end of the season of reflection and the beginning of the season of resolution. Basically, it’s time to get serious and get your priorities in order. Most of us set some pretty ambitious goals only to find ourselves right back at square one after six months. I happen to believe that New Year’s resolutions are really important. The trick is being able to set realistic goals for yourself and/or your family: start small and reevaluate your goals throughout the year as necessary.

Financial resolutions are some of the most popular, most important and most challenging. Retirement planning is especially challenging because it’s tough to stick to resolutions that will not pay off for years or decades. I’ve created a list of resolutions that are simple enough that you might just stick with them – throughout 2011 and far into the future.

Resolve to:

• Make your retirement plan contributions a major priority. Are you contributing enough to receive your employer’s match? Are you contributing as much as you possibly can? Check out the effect that compounding could have on your portfolio in the long run. You can see that the sooner you start and the larger the contributions the more you benefit from compounding.
• Be sure your portfolio truly reflects the type of investor you are. What is your tolerance for risk – are you more conservative or more aggressive? How close to retirement are you? What investment biases and preferences do you have? For a simple breakdown of your investor profile, check out this asset allocation tool.
• Re-balance your account quarterly. When you change your investment options for new contributions, remember to also re-balance the existing investments in your account.
• Look for help if you simply don’t have the time, the interest and/or the knowledge to do the research and analysis to select the right fund line-up. There’s no point in guessing. This is your financial future we’re talking about! You could use target-date funds or an independent advisory service like Smart401k if you need help.

Resolve NOT to:

• Act like a day-trader by checking your retirement plan account too often. It’s important to look at your balance and take note of fund performance compared with peers. But don’t obsess about it daily because this is a long-term investment. We recommend re-evaluating your investment lineup quarterly. You want to ensure that you’re in high-quality funds that are appropriate to your investor profile.
• Lose track of changes to your employer’s plan. Don’t shred all the mail you receive from your work retirement plan. If you receive a notice that new funds will be added to the plan, remember to evaluate whether those funds would be appropriate for your portfolio.
• Get too emotional with investment decisions. It’s one of the hardest things to avoid, but the ups and downs of the market can lead investors to panic. Panicked people make poor decisions. Stick to your plan, and contact a professional before making any decision based on fear or excitement about a market event.
• Get greedy. During the good times, when everyone seems to be making money in the market, it’s all too easy to try to time the market. Time and again market-timing attempts have burned retirement investors. You need a consistent and steady plan when it comes to something as important as your retirement investments.

Happy New Year everyone, and good luck with those resolutions!

Andrew Thomas, Associate Representative

About Smart401k

Smart401k is a web-based investment adviser providing unbiased advice to help employees invest in their employer-sponsored retirement plans.  Smart401k provides service to almost 11,000 clients who collectively have more than $1.5 billion in assets. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found at www.Smart401k.com.

First a quick history lesson: Congress’ changes to line 401(k) of the IRS code took effect January 1, 1980. On that day, 401(k) plans started on a path toward being the primary means for employers to provide retirement plans. As 401(k) plan popularity grew, individuals became more and more responsible for saving for their own retirement. The stock market saw a long-term bull run through the 1980s and 1990s, so people accepted and embraced 401(k) plans.

Fast forward to 2008: With the worst bear market since the Great Depression, investors around the country saw their balances lose 30%, 40%, even 50%. Lots of people hadn’t understood that 401(k) investment performance would dictate retirement income rather than the predictable set income that company pensions had provided.

A few talking heads in the media and some political extremists called for the death of the 401(k) plan, and those people began throwing out ideas for what should be done instead. Somewhere along the way there was an idea that the government should take over all existing and future 401(k) plans and turn them into annuities that would guarantee income during retirement – a new type of Social Security.

There was virtually no support for these ideas, and the discussions quickly quieted. But over the past couple months, a few fringe people have talked more about the government take-over idea.

I’ll admit I don’t know exactly when these discussions started or why. What I do know is when I hear people talk about stopping their own 401(k) contributions – the government’s going to bail me out; why bother saving??? –  I advise them that they’re making a huge mistake.

With the backlash that arose as soon as the idea of a government takeover was suggested, it’s incredibly unlikely that any type of action would happen in the near future. And since it seems like every article I read talks about people not saving enough for retirement, stopping your retirement savings out of fear is clearly not the right idea.

So instead, let’s talk about two other ideas for government intervention that have been suggested and why they may actually be helpful.

The first idea is part of the Senate Bill 2832 – Lifetime Income Disclosure Act (Read it here). In this bill, the Senators propose that it be mandatory for all retirement plan participants to be informed of their projected monthly retirement benefit based on the savings they have accrued. This reporting would be required at least once per year, like Social Security. The goals of this initiative are to (1) get people thinking about their retirement plans, (2) get them to realize that they may not be saving enough for retirement and (3) motivate them to make changes to saving habits.

Another recent idea was for retirement plans to start making annuities available to participants as a 401(k) investment option. While I’m usually not the biggest fan of annuities, there would be some instances in which they could make sense as long as participation was voluntary and fees were low. The ability to turn a portion of your retirement savings into a guaranteed income stream could give individuals more confidence about their financial future. Hopefully that would inspire investors to start saving more for their bigger goals.

Regardless of what changes ever take place, one thing is clear: you will continue to be responsible for saving for your own retirement. So start figuring out exactly how much you’ll need each month to create the standard-of-living you desire. If you’re still years or decades away, use calculators (like these on the Smart401k website) to determine whether you’re on the right path. And if calculations show you’re not there yet, start thinking of ways to change your savings habits.

For help getting on the right path, call Smart401k and talk to our advisers. Not only do we help you figure out the right allocation for your investments, but we’re available to talk to you about saving and other questions or concerns that you have. You can talk to me, and the rest of the adviser team, by calling 877.627.8401 or sending an email to info@smart401k.com.

Joe McCulloch, Senior Investment Adviser

About Smart401k

Smart401k is a web-based investment adviser providing unbiased advice to help employees invest in their employer-sponsored retirement plans.  Smart401k provides service to almost 11,000 clients who collectively have more than $1.5 billion in assets. Individuals receive personalized investment recommendations based on the funds in their plan and support of professional investment advisers available to answer all investment questions. Based in Overland Park, KS, Smart401k can be found at www.Smart401k.com.