Just having a retirement savings plan can be enough to make workers feel more confident about retirement planning. But it’s important to regularly check in to make sure you’re on track.
New research from the Employee Benefit Research Institute found that retirement confidence is rebounding faster among those with a retirement plan. Only 14 percent said they are not at all confident about having enough money for a comfortable retirement, versus 44 percent of those without a plan.
Still, it’s best not to set and forget about those automatic contributions from your paycheck. While workers can’t control returns, they can take action to make sure they’ve made the best choices when it comes to diversification, fees and taxation, said certified financial planner Artie Green, founder and principal of Cognizant Wealth Advisors in Palo Alto, Calif.
Investors have been more apt to seek out low-cost funds in recent years, according to a new study from Morningstar. The asset-weighted expense ratio across all funds, including mutual funds and exchange-traded products, was 0.64 percent in 2014, down from 0.76 percent five years ago.
If you haven’t already, join the crowd. Compare expense ratios for each investment in a given asset class, said Green. Unless there’s a compelling reason to go with the pricier fund, he said, switch to the less-expensive option.
“Probably the most important thing is picking appropriate investments,” said A. Raymond Benton, a certified financial planner with Lincoln Financial Advisors in Denver. How much to have in stocks, bonds and other investments will vary by factors including your age and risk tolerance. “Every family is unique in the sense that they have their own goals,” said Green. “Therefore the model or strategy that they’re following should be unique.”
Ideally, talk to a financial advisor to help determine what the right mix is for you, said Benton. Online calculators through your plan administrator, investment advisor or third parties such as Bankrate.com can offer possible breakdowns. Some services, including Blooom and Financial Engines will even manage asset allocation for you, for a fee.
It’s also worth weighing Roth versus traditional 401(k) contributions if your employer gives you that option, said Green. “An investment in Roth means you’re giving up a current tax deduction for future tax-free earnings,” he said. But whether that’s the right choice for you will depend on your current tax situation as well as your expectations of future tax rates. “It’s not obvious that the answer is, go with the Roth now,” he said. “It’s a fairly complex decision.”
One more checkpoint? Make sure you’re contributing enough to get the full employer match. “It’s very important to get up to that point,” said Benton. Otherwise, you’re leaving free money on the table.