Let's face it, most of us — Millennials, Boomers,
whatever — would prefer to spend our free time taking a weekend road
trip, picking a fantasy football team, or possibly, dare I say,
washing windows instead of dwelling on our 401(k) plans. But unless you plan on
working until your last breath, it's wise to take a look at what's going on
with your retirement savings. Some quick thoughts:
1) Save more, save
more and save more — especially if you're younger.
Nationwide, the average 401(k) balance was $91,100 as of
June 30 in 401(k)s run by Fidelity Investments. Fidelity's pool of data is
based on 13 million 401(k) accounts. Employees had a total savings rate of
12.4% based on the Fidelity data. The savings rate breaks down to an 8.1%
savings rate by employees and 4.3% in company matching funds on average.
Baby Boomers — who had more time to build up more
savings — had on average $152,900 in those Fidelity 401(k)s nationwide. Their
savings rate was 14.6% nationwide, with a 4.7% company match. By contrast,
Millennials had an average balance of $22,100 in Fidelity 401(k)s across the
country. Their savings rate was 10.5%, with a 3.9% company match.
Gen X employees had on average $83,200 in their 401(k)
accounts, with a savings rate of 12.2% nationwide. That savings rate includes a
company match on average of 4.3%.
Jeanne Thompson, vice president of Fidelity Investments,
said Millennials are benefiting in many cases from employers who have set up
plans that automatically enroll their new employees into 401(k) savings plans.
Some plans also automatically boost the savings rates for employees each year.
Or some plans offer employees a way to sign up and automatically see an extra
1% or so of their pay go toward retirement each year. So while the average
might look small, Thompson said, the Millennial average would include new
employees with small accounts.
How much you need to save, of course, can be debatable. The
glib answer might be that most of us will never save enough, so it never hurts
to save more. Fidelity has a general guideline that you'd want to have one
times your salary saved for retirement by age 35 and edge up to three times
that salary by age 45 and five times the salary by age 55.
2) Give a second look
to just how much money you have riding on just one stock in your 401(k).
Plenty of people got burned badly in 2008-09 when they held
too much of their own company's stock in their 401(k) plans. On the flip side,
though, some 401(k) plans got dramatically
re-energized after stock in some companies shot up like a rocket in
the latest bull market.
Even so, it's a terrible idea for most people to
consistently leave all of their retirement money in a company stock
fund, especially if they do not have a pension or other investments
outside of a 401(k) plan.
The good news, though, is that many 401(k)s are no longer
heavily packed with company stock. That's due in part to changes in how
company matches are handled now. Only 8% of participants in 401(k) plans had
more than 80% of balances invested in company stock at year-end 2013, based on
the latest report from the Employee Benefit Research Institute.
3) Watch out for an
ever-changing landscape within your own 401(k) plan.
Employers are increasingly looking to add lower-cost
options into 401(k) plans and shift toward more simplification, according
to Nathan Voris, director of Sponsor & Workplace Investment Solutions
at Morningstar.
Ford, for example, added dozens of mutual funds to its
plan in 1995 but by 2002 started pulling back on some funds and
simplifying. The idea was to be able to diversify without making
things complicated. Of course, it's possible that a favorite mutual fund
could end up being discontinued, as well.
David Kudla, CEO and chief investment strategist of Mainstay
Capital Management inGrand Blanc, said cutting out the Contrafund is a bad move
and a reflection of a bad trend that gives employees fewer choices.
He said the Contrafund is a good "all-weather" fund that
has outperformed the Standard & Poor's 500 in 2015.
Ford employees who are willing to take on more risk might
opt for the Fidelity Growth Company Fund, Kudla said, instead of
simply rolling that money that's now in the Contrafund into the S&P
500 index fund. Ford noted in a statement that the company regularly
monitors its investment lineup.
Anthony Agbay, president for the Agbay Group in Troy,
Mich., said simplified 401(k)s aren't necessarily bad. More
include target-date funds, an age-based fund that offers a mix of
investments that are more conservative as one near's retirement. And those
options can work for some who don't want to make their own moves.
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