Be the master; Secrets to Saving More for Retirement (2) – Jane Bennett Clark

Continued from part (1)

4. Review fees

A few years ago, news reports warned that excessive 401(k) fees were reducing individuals’ retirement accounts by tens of thousands of dollars. But here’s the good news: 401(k) fees, including investment management fees and administrative costs, have declined over the past few years. A recent report by BrightScope and the Investment Company Institute showed that the average cost of a 401(k) plan had dropped from 1.02% of assets in 2009 to 0.89% in 2013.

One reason for the change is that since 2012, employers have been required to spell out 401(k) fees to plan participants, and plan administrators must disclose their fees to employers. “Because of those rules, employers and employees are more aware of the costs associated with the plans,” says Phan. “And because employers have the fiduciary responsibility to evaluate their plan, they are making sure the fees are competitive with other plans.”

Fee disclosure rules have also changed the way plan sponsors — that is, employers — calculate admin­istrative fees, making them fairer and easier to understand, says Austin. In 2011, 83% of companies charged administrative fees as a percentage of assets. Now, 39% impose a flat-dollar amount per account. The median flat fee per person was $64 in 2015, according to NEPC, an investment consulting firm. Not only does the change mean that savers are paying equally for the same services, says Austin, but it “also gives participants a clear line of sight on fees.”

For all these improvements, you can’t know how your 401(k) fees measure up unless you compare costs with benchmarks shown on the statement as well as with plans at similar-size companies (to compare plans, go to www.brightscope.com). For instance, you might find that the fund you’re invested in charges a higher management fee than a comparable one with the same performance, in which case you’ve got a clear signal to switch. Similarly, if the fee for administrative costs seems out of whack compared with other plans, bring the matter up with your employer.

If all else fails, you could invest in a traditional or Roth IRA outside your 401(k), after contributing enough to the 401(k) to meet the match. In 2016, you can contribute up to $5,500 (plus $1,000 if you are 50 or over) to a traditional IRA or a Roth.

5. Put the pedal to the metal

If you’re in your late forties or early fifties, you may have fallen off the savings track — say, to cover college bills or buy a bigger house. Contributing less to your 401(k) for a few years won’t devastate your retirement prospects, especially if you started saving early. But remember that retirement is your first priority, says David Meyers, a certified financial planner in Palo Alto, Calif. “You can’t fix that. It’s harder to retire on less than to live in a smaller house.”

Carving an extra $50 or $100 out of your budget to beef up your 401(k) is helpful, but ideally your earning power is now at a point that you can contribute the max, including the catch-up contribution. And if you have a high-deductible health plan that qualifies you for a health savings account, you can also save $3,350 a year if you’re single ($6,750 for families) in 2016, with a $1,000 catch-up amount if you’re 55 or over. Maxing out those two savings vehicles alone gets you almost $30,000 in pretax savings a year. “If you can do that for five or 10 years, you can really catch up,” says Ready. “It’s never too late.”

By this age, you probably have a decent idea of whether your income — and thus your tax rate — will go up or down in retirement. If your employer offers a Roth 401(k), consider contributing to it now, if you haven’t funded it already. You’ll probably want to go this route if you believe your tax bracket will go up in retirement rather than down. But even if your income will likely drop, you would be wise to squirrel away some money in a Roth in case tax policy changes, says Austin. “You’ll have a buffer from taxes later,” he says.

6. Enlist the experts

Has life gotten complicated? You’ll need more help. “A 25-year-old in a retirement plan can simply pick a 2065 target-date fund,” says Austin. “But when you get to 55, one person may have paid off his mortgage, another not. One might have a huge pension, another doesn’t. And how do you fold in spouses? For those people, it’s nice to have more input.”

Enter managed accounts, offered by more than half of employers as an option in their 401(k)s, according to the Aon Hewitt study. With these accounts, a professional advisory service will discuss your financial circumstances, perhaps both online and over the phone, and tailor a portfolio accordingly, periodically monitoring and rebalancing it. Managed accounts offer a high degree of personal advice, so they’re most appropriate for investors who have complex finances — say, multiple 401(k)s, a pension or company stock outside their retirement account, says Sangeeta Moorjani, senior vice president of Fidelity’s Professional Service Group. “They realize they can’t do it on their own.” For that help, you’ll pay a fee of about half a percentage point of your assets; some employers pick up the tab.

If you don’t have access to a managed account or want more face-to-face advice, schedule a few sessions with a financial adviser. Advisers streamline your accounts, coordinate your income and assets with those of your spouse, and assess your retirement readiness. Meyers, for instance, offers a portfolio review plus Social Security planning and a retirement income analysis. “Before I dive into a portfolio, I add up all retirement assets and all nonretirement assets to get an idea of the total picture and project what it will take to achieve the level of spending the client wants in retirement.” The best part of his job? “Every now and then, I’ll look at the numbers and say, ‘You can retire yesterday.’ That’s really cool.”

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