Make Your 401(k) Retirement Plan Work For You

January 28, 2013 | By Steven DiGregorio

When it comes to saving for retirement and building a portfolio to last a lifetime, most Americans are way behind. More than 54% of Americans report that the total value of their household’s savings and investments is less than $25,000, according to the Employee Benefit Research Institute’s annual Retirement Confidence survey. What’s worse, 27% have less than $1,000 in assets. Just 11% have more than $250,000 set aside.

Those figures include Americans young and old, those just starting in the work force as well as those about to check out. The bottom line is clear, Americans need to modify their savings and spending patterns to have any hope of enjoying not just a standard of living they’ve become accustomed to but rather a comfortable retirement they would aspire to.

401(k) Portolio

401(k) Portfolio

You work hard for your money. So here’s some guidelines to get your 401(k) on the right track and working for you!

1. Participate in your plan

If you’re lucky enough to have a 401(k) at work, contribute to it. The healthiest 401(k) plans tend to be those where the majority of the eligible employees are participating in the plan. Many 401(k) plans now have automatic enrollment, where eligible employees are automatically enrolled in the 401(k) plan; automatic increases, where the percent of salary employees contribute to the 401(k) plan is automatically adjusted upwards on a regular basis; and investment workshops, websites or advice provided to workers.

2. Avoid risky behavior

What kind of risky behaviors are we talking about? Having an outstanding loan that represents 25% or more of your total 401(k) account balance; not being properly risk adjusted or diversified; not using an investment strategy; concentrating in specific asset classes; concentrating in company stock; not taking full advantage of the company match; saving 2% or less; and not saving at all.

3. Increase your contribution rate.

If you are participating in your 401(k), consider upping the percentage of your salary that you contribute because every little bit matters. Contributing just 1% or 2% more of your salary to your 401(k) can have a dramatic effect on your retirement savings over time.
For example, a 30-year-old employee earning an average salary of $50,000 who increases her contribution rate from 4% to 6% will have accumulated an extra $295,000 by the time she reaches retirement age.

4. Put your plan on autopilot

Face it, its human nature to avoid change. Since what you start you may well just leave alone, make it a positive. If you contribute 6% to your 401(k), you’re likely to keep it that way even if you get a raise. But you should consider taking advantage of any and all tools that take the guesswork out of saving and investing. Consider signing up for automatic escalation and automatic rebalancing tools if your employer offers such options.

5. Take advantage of advice

The median annual return for employees using investment help was almost 2% higher than those who did not, according to a joint study from Hewitt Associates and Financial Engines.

According to Hewitt, one in every two firms in its survey currently offers online investment guidance, and 39% offer online, third-party investment advisory services. In addition, 28% of employers currently offer managed accounts that let participants delegate management of their account to an outside professional.

6. Don’t forfeit free money

If your employer has a matching contribution in the plan, don’t miss out! It’s hard to believe, but more than one-in-four workers leave free money on the table. They contribute below the company-match threshold, according to Hewitt. Contribute enough to your 401(k) to receive your full employer match.

7. Don’t cash out

If you’re changing jobs or leaving your current job, don’t cash out your 401(k) savings. About 46% of employees cash out, according to Hewitt. But doing so can have serious consequences. Typically, you’ll play a tax on the amount withdrawn and a 10% early withdrawal fee. Rather, you may want to consider taking control by considering a 401(k) rollover to an advisor you trust.

8. Don’t over-invest in company stock

Over-investing in company stock means that both your human capital and financial capital are tied to your employer. And if your employer goes belly up, you lose your job and a good portion of your 401(k).  We would recommend contributing no more than 10% of your 401(k) to your employer’s stock.

For more information contact Compass Asset Management Group, LLC at 845.563.0537or

The author of this blog, Steven M DiGregorio is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC a Federally Registered Investment Advisory Firm. Securities offered through an affiliated company Spire Securities, LLC a Registered Broker/Dealer and member FINRA/SIPC.

Tags: 401(k), 403(b), 457, asset allocation, auto enrollment, company stock, diversify, executive retirement plan, investing, investment strategies, investments, mutual funds, portfolio, retirement, retirement plan, Retirement Planning, Rollover, rollover IRA, stocks, target funds

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STEVEN M DIGREGORIO is President of Compass Asset Management Group, LLC and an Investment Advisor Representative with Spire Wealth Management, LLC.
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