What’s your 401 (k) IQ?

Five Questions to Ponder

Since the advent of the 401 (k) many decades ago, our economy and society have been moving toward self reliance in retirement.  We are more on our own than ever before.  Last week we wrote that it’s not your father’s retirement any more.  Unfortunately many of us are still ill equipped to handle this responsibility.

In addition to the challenge of being more in charge of your retirement destiny, our political leaders continue to borrow from our future, making Social Security not as secure as promised.  According to a recent Schwab survey, over half say 401 (k) investment information is more confusing than health care benefits.  One-third feel a lot of stress about choosing their 401 (k) investments (34%).

This article is aimed at providing some common-sense questions to ask yourself, and give some guidance on improving your retirement IQ.

1.  Am I paying myself first?

  • A 401 (k) plan is an ideal saving mechanism to pay yourself first, ahead of everything else.
  • Putting contributions every pay period is incredibly easy with powerful results.  First  your contributions reduce your taxable income (within certain guidelines), so you are saving taxes by saving.  You may even be able to change your tax withholding depending on your tax situation.  Second many employers offer a match program, discussed later.

2.  Have I spent any or enough time educating myself?

  • Invest in yourself, both financially as well as educationally.  At least familiarize yourself with some of the basics.  There should be plenty of information from the provider of your 401 (k) plan to at least get a start on education.  In addition there are numerous helpful websites such as DimeSpring, MarketWatch, and a recent Wall Street Journal article on available personalized advice.

3.  Am I contributing at least enough to maximize the employer’s match?

  • Many employers have some kind of matching program, with the average around 3%.  This may sound like a no-brainer, but check to make certain, as 28% of participants are not according to Mint.com.

4.  When was the last time I reviewed my 401 (k)?

  • Generally you receive statements of your account on a quarterly basis.  At least set a goal for yourself to thoroughly review it once a year.

5.  Have I asked for professional help?  There are many avenues to seek assistance:

  • Go to your employer first.  Depending on the size of the company, there may be internal assistance.  In smaller companies don’t be afraid to reach out to the 401 (k) provider for help.  Your employer can help with this.  It’s their responsibility to assist plan participants in education and information about your 401 (k) plan.
  • Another option is to seek the help of an objective third-party such as a Certified Financial Planner™.  Generally if they are a fee-only planner, the cost for this should not be prohibitive.  We would recommend someone in the Garrett Planning Network.

Call us at Financial Freedom Planners – we can help guide you in the right direction.

Remember:  “It doesn’t take a fortune to build one!”


About Charles Roberts, CFP®

Founder & CEO, Financial Freedom Planners™
This entry was posted in 401 (k) Plans, Financial Planning and tagged , , , , , , , , , . Bookmark the permalink.

3 Responses to What’s your 401 (k) IQ?

  1. Pingback: Financial Illiteracy – The Odds Are Stacked Against Us | Financial Freedom Planners

  2. Pingback: Small Business Owners Face A Retirement Crisis | Financial Freedom Planners

  3. Pingback: 7 Ways To Unknowingly Sabotage Your Retirement Income And How To Avoid Them | Financial Freedom Planners

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