#MoneyMonday
You probably did not notice that you missed a holiday last week. Oh sure, there was Labor Day on Monday September 5th, 2022. But did you know that there was a holiday on Friday September 9th, 2022? Ah! Starting in the year 1996 The Profit Sharing/401(k) Council of America, began National 401(k) Day to promote the importance of these plans. According to a recent survey by TransAmerica approximately 77% of Americans have a retirement plan. It is estimated that 79% of Americans work for a company that offers a 401(k) plan; however, only 41% take advantage of the benefit. Since it’s not too late to celebrate the holiday, here are some considerations with reference to your 401K retirement plan.
Fees:
As you review your current retirement plan, you may find that your largest expense stems from fees. Fortunately, because our benefit plans are regulated by state and federal government, we maintain some sense of security that, at least, our employers must act responsibly when it comes to our retirement funds. That said, there are expenses from fees. These expenses can be categorized into three areas: administration fees, investment fees and individual service fees. Administrative fees are those paid for a financial institution to manage the fund. They would include trustee fees or legal fees.
The largest of these are generally investment fees. While on the surface 1.5% may not seem like a lot, when compounded over years, your investment fee cost can accumulate to significant amounts. As Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understand it, earns it, but he who does not, pays it.” The point is that fees can ultimately diminish your retirement funds.
Where are your funds Invested:
Most people do not have the time, skills or expertise to follow the stock market and track where their retirement funds are invested. Therefore, a significant percentage of 401K funds are invested in what is referred to as “target date” funds. The concept is simple. You state when you want to retire and how much you need for monthly living, and the funds are invested in accordance with your objectives.
One of the issues with target date funds is that your risk tolerance may not be accounted for in your company’s plans. For example, if you want to retire in 15 years from now, your money is invested with everyone else who plans to retire in 15 years from now. But what about your individual risk and tolerance? Individual Retirement Accounts, may be a worthy consideration as an alternative, if you do not like the 401K option.
Account Rebalance:
Since the 401 K holiday occurs annually, this is the perfect time to rebalance your account. Think of rebalance as annual maintenance. For example, is your allocation in alignment with your age? The theory is that the closer you are to retirement , the less percentage of your portfolio should be invested in equities or stocks. But what if you got started with your retirement plan later in life? Should that still be the game plan? Therefore, you should engage in retirement account maintenance during the 401K period each year.
WHAT’S UP!
Today’s what’s up is about bonuses. Credit cards issuers and banks promise you bonuses and the world if you sign up with them, but there is a catch. In the first instance, these accounts require one to maintain a high balance of funds in the bank account. Secondly, they require you to execute reoccurring transactions monthly. But let me point out the unspoken secret about bonuses and that is, they are taxed! The banks report to the IRS bonuses given when you sign up. Enough said! And that’s what’s up!
