Most of us will have the opportunity to benefit from a 401(k), a profit-sharing or some other corporate retirement plan.
Typically, after accepting a position with a company, employees are given a great deal of information about their benefit options. These may include health insurance, life insurance and retirement options. This is where an overload of information can make it challenging to make the best decision. There is a definite need for further education within companies to assist employees with choosing benefits, and specifically when planning for their retirement.
In most cases, employees complete a packet for their 401(k) or other type of plan with advice from a family member, other employees or no advice at all. This is certainly not the best way to choose the right investments to help reach one’s retirement goals.
It is important to evaluate and consider many factors in choosing what type of investments make sense. One must consider his or her risk tolerance, time horizon and retirement needs. Moreover, some plans may have limited contribution amounts or investment options. These specifics make it even more difficult to understand and choose the best amount to contribute or the best investments to take full advantage of plan benefits. Some limitations may require employees to consider other resources for further retirement needs in addition to corporate plans.
Today, corporate retirement plans have improved as they have become more dynamic. Of course, using them the proper way and understanding your choices are critical to achieving maximum benefits. For example, many plans offer pre-tax contributions, after-tax contributions, a match of employee contributions (free money), loans options and asset protection.
Adding various mutual funds, bond funds, fixed accounts and target date funds to choose from can make it even more daunting when deciding what is best for each person. I highly recommend seeking the advice of a financial professional or a representative from the plan sponsor to help make the best choices for each person’s situation.
I am often asked to sift through a maze of investment options and analyze the best funds from which to choose in a company plan. Knowing the best plan and investment choices are hardly self-evident to the average investor.
Through education, guidance and a checklist of relevant questions, one can highly improve their odds of success. Choosing the right funds, the amount to contribute and when to make changes is an on-going process. It is critical to review these regularly.
Here are some questions to consider:
- What type of plan is offered?
- Does the company match employee contributions, and how long before matching contributions are vested?
- Are there additional fees for managing the accounts, and what are they?
- Is there someone who can help with investment and contributions choices?
- What is the maximum amount that can be contributed?