You’re 401(k) Probably Needs Some Attention. Here’s Why

What do you know about the investment markets? If you’re like most Americans, you know very little. You know that there is a stock market and you’ve heard of mutual funds because you had to pick them when your company gave you that big stack of retirement literature. If you don’t know much about the investment markets, it’s nothing to be ashamed of. Those who have investment knowledge probably don’t know a lot about your line of work either. Should you know everything about everything? Certainly not and that’s why you have to know when to ask for help.

A Few 401(k) Facts:

God wants you to save and make sound financial choices that line up with His will for your life. Saving is a good thing and it’s part of God’s plan for everybody.

“A good man leaves an inheritance to his children’s children, but the sinner’s wealth is laid up for the righteous.” -Proverbs 13:22

Saving is essential. Of course, there are the exceptions but for nearly everybody, their ability to work will one day end and the money they’ll have to live on will be Social Security (which won’t be enough) and the money they saved for retirement. You’re going to need between 12 and 15 percent of your annual salary committed to your 401(k) in order to have the money you’ll need.

But Here’s What People Don’t Know

When you commit money to your 401(k), it is funneled into investment products (almost always mutual funds) where the money is expected to grow. That will happen over the course of a few decades but if you picked the wrong investment products, it may not happen as fast and efficiently as you would like. If you chose not to pick your funds, all of your money was likely placed in a target date fund. (See my article on target date funds here.)

The problem with many target date funds is the cost. Each year, the fund is taking somewhere around 1% of your balance to administer the fund and that adds up. One study found that 401(k) fees cost Americans $164 million every day! For you, personally, that could translate into $250,000 lost from your account balance over the life of your 401(k). It’s not just target date funds. It’s many mutual funds. Picking low cost funds should be towards the top of your list.

You Need Help

If you don’t know much about the financial markets, you need somebody’s help. The term, “financial adviser” is a term much like “used car salesman” in the minds of many Americans but just like the car guy, there are plenty of reputable financial advisers who can help you. Here’s what to look for:

  • They should disclose to you how they’re paid at the very beginning.
  • They should not work on commission.
  • Look for fee only advisers and even better, look for somebody that will charge you an hourly rate to give you advise.
  • They should be somebody you like that has the heart of a teacher.

Advisers who charge an hourly rate have no financial interest in steering you into a product that will cost you a lot of money because they don’t get paid extra to do it. Always think about the person’s motivation.

Finally, if you have general questions about your 401(k), leave a comment and we’ll do our best to answer.