No matter what company you work for, you never know what's in store. If the company closes its doors, you'll lose your job. But you don't want to lose your entire retirement portfolio as well. Still, Hewitt Associates, a human resources consulting firm in Lincolnshire, Ill., indicates that, on average, employees have almost 22% of their 401(k) assets invested in employer stock. More disconcerting is that one of five employees has at least half the retirement assets invested in the company.
Besides not putting too much into company stock, About.com suggests these tactics so you get the most out of your 401(k) plan:
- Watch out for fees. The U.S. Employee Benefits Security Administration estimates that for someone with 35 years until retirement and a 401(k) plan valued at $25,000, fees can make a big difference. If the investments in such an account return 7% annually and fees are 0.5% of all plan assets, that 401(k) plan will grow to $227,000 by the time the recipient hits retirement age. But what if the 401(k) plan fees are 1.75% instead of 0.5%? Then the retirement landscape isn't so bright. Instead of $227,000, the plan participant would only earn $150,000. The 1.25 percentage point difference in fees cuts more than $77,000 (34%) of the 401(k)'s account balance at retirement. Ask your human resources department what your plan's fees are.
- Diversify. Spreading your money over a variety of high-quality investments rather than putting it all in one place will help smooth out the ups and downs of the market. "Diversifying is the best way people can make money investing," says Chad Winklepeck, an investment representative with Edward Jones in Oregon, Wis.
- Contribute and max it out. If you don't contribute to your employer's 401(k) plan, you're basically giving up free money. For one, there are substantial tax benefits to contributing. Also, some employers will match employee contributions up to a certain percentage.
For more information about calculating end results of your plan, read "401(k) Fees: Know What You're Paying, What You're Getting" in Home & Family Finance Resource Center.
courtesy of cuna.org