It is popularly accepted that 401(k) plans are and will continue to be the most important savings vehicle for most Americans. However, they may also be the most neglected and misunderstood investment that people hold.
OUT OF SIGHT, OUT OF MIND
According to the Bureau of Labor Statistics the median number of years that workers stay with their current employer is 4.2 years. Many employees leave their 401(k) funds behind with their previous employers money manager for multitude of reasons. For some, the thought is that they will deal with transferring their account when the dust settles but then are distracted with new opportunities causing the transfer to be delayed indefinitely. For others, the challenge is knowing where and how to transfer the funds. Should you self-manage or hire a professional? Who should you hire?
401(k) funds are amazing opportunities to prepare for retirement, especially if the employer matches funds put in by the employee. Unfortunately, the option to diversify funds is greatly restricted. The average 401(k) may offer 6-10 mutual funds, while a Traditional or Roth IRA options are limitless.
Once the funds are selected, how do you determine if the risk level of those funds matches your personal tolerance for loss or gain? How does the risk level of your 401(k) funds work with your other investments and goals?
YOU HAVE OPTIONS
When leaving an employer for new opportunities, consider taking your retirement funds with you. Keeping all your funds in a single Traditional or Roth IRA will simplify the monitoring and management of your retirement. It will also open your options for diversification and selecting funds that match your risk tolerance.
If working with a financial advisor you will have the added advantage of having the funds actively managed. In doing so, your funds will be consistently rebalanced as the market changes. While the maintenance cost of the funds may slightly increase, the risk of loss is reduced and the opportunities for growth are increased.
Most Financial Planners will review all your income streams and retirement funds. They can determine your personal tolerance for risk and can build a plan that will distribute risk across all your investments, including your current employers 401(k). This will allow your 401(k) to work with all your goals and not be isolated with it’s own focus.
DETERMINE YOUR PLAN
If you have funds with a previous employer, determine if that is still your best option. Seek counsel from several experts in the field. If you have the desire to self-manage determine how much time you can commit to monitoring your own funds in addition to doing fund research as the market changes. If you feel you need to work with a professional financial advisor, interview several and ask a lot of questions.
At Kuderer Financial, we welcome clients who want to be educated, allowing them to make the best financial decisions that match their personal and financial goals. Contact us to set up a free consultative meeting to review your options for past and current 401(k) funds.