At some point in our professional lives, we’ve heard of or have been a participant in our company’s 401k plan. As a Chartered Retirement Plan Specialist, I’ve had the privilege of visiting with different businesses and educating their employees on the 401k plan. One thing that I’ve all too often heard from employees is that they do not understand the investments. They do not know about the 401k and can’t understand where to invest their hard earned dollars to make their participation count! Well the first thing an employee should do to get this information is to get the education.
One of the first sources of education about your plan will come from your human resources department. Every 401k plan has what is called a Summary Plan Description. This guide is sort of like a bible about your plan. It talks about how you become eligible, how to contribute, how your employer contributes, how to take distributions and other facts about your plan. All employees should become familiar with this. Your employer must provide this to you within 90 days after becoming eligible to participate in your plan. You should always request a copy of this even before 90 days as this will get you familiar with how your plan functions.
The enrollment kit is also very valuable! The materials inside of your kits will include all the juicy details about your plan and the type of portfolios you can invest in. Plan providers have become very clever with assisting participants with choosing their investments. Most offer ready made portfolios options that you can pick based on your age or the type of investor you are.Your investment style ranges from conservative (less risk) to Aggressive (riskiest). Your portfolio will be comprised of either all stocks or a combination of stocks, bonds and other fixed income instruments.
The more aggressive you are, the more stocks your portfolio will have, the more conservative you are the more bonds and fixed income your portfolio will have. Pretty simple! Well of course there are other ways to choose your investments for the savvier investor, some plans offer a do it yourself option where you can pick your own investments and build your own portfolio. If you are a do it yourself, then you will need to monitor your account and ensure that you periodically re-balance your investment allocations.
Some plans offer a feature where the participant can log-in to their website and review their account summary. The account summary reflects the account balance, investment performance, money sources and other details about your account. You can also make investment changes and update your personal information on your site.
Some sites even offer a tools tab that will allow you to take advantage of online calculators to help you decide how much you should be investing to reach your retirement goals. All too often I’ve run across participants who have never gone online to look at their accounts. The account is just like any other financial statement you receive from your bank. You should know what is going into and what is going out of your account.
Well I hope this helps! So please take the time to inquire about your plan and become more educated about your company’s retirement benefit. I wish you all the best in achieving your retirement goals.