At 83rd Street, we understand that our clients are not only financially savvy but also family-oriented individuals. As such, planning for retirement isn’t just about securing your future; it’s about ensuring the financial well-being of your loved ones as well. With the recent passing of National 401(k) Day, we’d like to shed light on the importance of assessing your retirement plan benefits and ensuring they align with your financial goals and family aspirations.
What is a 401(k)?
A 401(k) is a tax-advantaged retirement savings plan offered by employers in the United States. It allows you to set aside a portion of your salary into an investment account, typically composed of various mutual funds or exchange-traded funds (ETFs). One of the significant advantages of a 401(k) is that contributions are made pre-tax, reducing your taxable income and helping you save more for retirement.
Here are some important benchmarks to help determine whether your 401(k) is competitive:
1. Matching Contributions
Matching contributions are essentially “free money” provided by your employer. If your employer offers a matching program, it’s smart to take full advantage of it. The typical structure is a dollar-for-dollar match up to a certain percentage of your salary. For example, if your employer matches 50% of your contributions up to 4% of your salary, contributing at least 4% ensures you receive the full match.
Fees can significantly impact your retirement savings over time. High fees erode your returns, potentially costing you thousands of dollars in the long run. Review your plan’s fee structure, including administrative fees, investment management fees, and any additional charges. A lower-cost plan can significantly boost your retirement nest egg. Delve into your Form 5500 to unveil the true expense ratio of your 401(k). Lowering this ratio can enhance your retirement savings, ensuring you’re not paying more than necessary for your financial future.
3. Investment Options
Diversity in investment options is crucial for a well-rounded retirement portfolio. A robust 401(k) plan should provide a range of asset classes, such as stocks, bonds, and cash. Diversification enables you to spread risk and optimize returns based on your risk tolerance and time horizon.
4. Investment Quality
In addition to examining matching contributions, fees, and options, it’s equally important to assess the quality of investments available within your 401(k) plan. If you discover that the funds within your plan are expensive or have a history of underperformance, you have the option to take proactive steps. Consider reaching out to your plan administrator to inquire whether they would be open to expanding the range of investment choices available.
How can you assess if your retirement plan benefits stack up?
- Review Your Plan Documents: Start by reviewing your plan documents, which often include a summary plan description (SPD). This document provides a wealth of information about your plan, including details on matching contributions, fees, and investment options.
- Compare with Industry Averages: Research industry averages for the benchmarks listed above, including matching contributions, fees, and investment quality. Online resources and financial publications can provide valuable insights into what’s considered competitive in the current market.
- Consider Outside Accounts: Evaluate whether supplementing your 401(k) with an IRA or other retirement accounts might provide more flexibility and control over your investments.
- Weigh Your Family’s Needs: Remember that your retirement plan benefits don’t just impact you but also your family. Ensure that your plan aligns with your family’s long-term financial security goals. Discuss your plan with your loved ones to ensure everyone is on the same page.
- Regularly Review and Adjust: Assessing your 401(k) plan isn’t a one-time task. Your financial situation and retirement goals may evolve over time. Regularly review your plan and make adjustments as needed to stay on track.
- Speak with a Financial Advisor: Consider consulting a financial advisor for a personalized assessment. An advisor can provide expert guidance tailored to your unique financial situation and retirement goals.
Imagine the possibilities: A comfortable retirement where you can spend more quality time with your family, embark on new adventures, and support your children’s dreams and aspirations. These dreams are within your reach, and a well-structured 401(k) plan can be your ticket to get there.
While the financial landscape can be complex, you don’t have to navigate it alone. The 83rd Street team is here to provide you with the knowledge, expertise, and support you need. We work hand in hand with clients to help you make the most of your employer-sponsored retirement plans and determine how much you need to retire comfortably. Get in touch today to get started!
This information is not intended to be relied upon as forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions are derived from proprietary and nonproprietary sources deemed by 83rd St. Wealth Management, LLC to be reliable. Please consult with 83rd St. Wealth Management, LLC financial advisor to ensure that any contemplated transaction in any securities or investment strategy, if mentioned, align with your overall investment goals, objectives, and tolerance for risk. Additional information about 83rd St. Wealth Management, LLC is available in its current disclosure documents, Form ADV and Form ADV Part 2A Brochure, which are accessible online via the SEC’s investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using CRD # 172115. 83rd St. Wealth Management, LLC is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting or tax advice.