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Investing & Retirement

The Road to a Terrible Retirement Is Paved With Good Intentions

5 Minute Read

We Americans think a lot of our 401(k) plans. Next to health insurance, it’s the top benefit we want from our employers. That’s because the vast majority of us—80%—expect the money we save in our 401(k)s to be our largest source of income when we retire.

However, while we understand the importance of a 401(k), surveys of 401(k) investors show that they don’t understand their plans, are confused by their investing choices and aren’t even sure where their money is invested.

A Helping Hand That’s Falling Flat

Employers have realized that their human resources departments are limited in their ability to help workers manage their 401(k)s. HR personnel aren’t financial professionals, after all, and they often have the same questions as the workers they try to help. So employers have stepped up their efforts by offering everything from printed educational materials to online planning tools to in-person retirement workshops.

But employees rarely make use of those tools. For example, most employers offer a retirement income calculator to help participants determine a retirement savings goal. But only 38% of 401(k) participants have ever used the calculators.

There could be any number of reasons why employees don’t take advantage of these tools. One likely explanation is that the employees expect the tools to show that they are way behind on their retirement goals, but they don’t know what changes to make to improve their outlook—and there’s no one around to give them reliable advice. More than a third of employees don’t even know how their 401(k) money is currently invested.

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So, if employer-provided 401(k) tools are no help, how can you make sure you’re making the most of your 401(k)’s potential? We’ve got a few simple steps you can take right away to make you a more confident 401(k) investor.

Get the Match!

Let’s start with the most obvious: Take advantage of your full employer match. You’ve probably heard this advice a hundred times, but with 20% of 401(k) participants still contributing less than 5% of their income to their 401(k)s, it doesn’t hurt to say it again. A worker who makes $40,000 a year and passes up just 2% of his employer match can reduce his nest egg by more than $290,000 after 30 years of investing.

If you’re one of the 20% who’s probably missing out on a 100% return on your money, get with your human resources department and increase your contributions with your next paycheck.

Get a Plan!

No matter how much you’re investing in your 401(k), you’ll feel more confident about your ability to make ends meet today while you work to meet tomorrow’s long-term goals when you have a financial plan. If you’ve had to work your way out of debt or had a serious savings goal, you know exactly what we’re talking about. But just in case, here’s a quick refresher on how to start a successful financial plan:

1. Have a meeting with your spouse. It’s important that you and your spouse agree to make retirement savings a priority. By working together, you’ll find more ways to save or cut expenses, and you won’t end up arguing over the changes.

2. Put it in the budget. A zero-based budget is the key component to your plan. Once you’ve decided how much more you want to contribute to retirement, add that line item to your budget. Except for your basic living expenses, retirement takes priority over all categories.

3. Stick to the budget. Working together, you and your spouse need to monitor your budget and make sure it’s working. Big changes may take a few months to get used to, but hang in there. Pretty soon, you won’t miss the extra money you’re putting toward retirement.

By taking these steps, you won’t have to worry that contributing more to your 401(k) will prevent you from paying the bills. But this is just the beginning of an overall financial plan. You have plenty of other goals like saving for your kids’ college and paying off your home.

Here’s where your employer can help. Many companies have begun to offer financial wellness programs to help their employees learn how to manage their money. If your employer doesn’t offer a program like this, suggest they take a look at SmartDollar, the financial wellness program built on the financial principles Dave has been teaching for 20 years. SmartDollar will show you and your fellow employees how to take control of your money and reach those long-term goals.

Find an Investing Pro in Your Area!

Employers can offer all the online calculators and retirement workshops they want, but nothing can take the place of one-on-one time with a true investing professional. Among 401(k) investors who review their plan with their own investing pro, 74% say they have a clear understanding of the plan and just 37% were confused about their investing options, compared to nearly 50% of participants who did not discuss their 401(k)s with a professional.

Survey results also show that investors who get professional help contribute more to their 401(k) plans thanks to guidance from their pro, and they understand their 401(k) plan’s role in their overall retirement strategy.

Don't know where to start?  Talk with an investing professional in your area today!

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