FIVE WAYS YOUR 401(K) IS HELPING YOU SAVE BETTER
DON’T SETTLE FOR SLOW More workers are automatically signed up for 401(k)s … PERCENTAGE OF PLANS THAT AUTO-ENROLL EMPLOYEES
51% 61% 2010
2015
… But overriding the default amounts can jump-start saving. ACCOUNT BALANCE FOR WORKERS WHO START AT $50,000 PAY Start at 4%, go up 1% a year
Start at 6%, go up 2% a year to reach 12%, then 1%
$63,781
$60,000 Aggressive saving leads to $19,700 more after seven years
40,000
$44,093
20,000
0 Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
place plan to decide if a target fund’s mix of stocks and bonds is right for you. For instance, the default fund in your 401(k) may be too aggressive for you if you own a lot of stocks and other risky holdings outside the plan. And if you are married, you and your spouse should be looking at your assets together. A financial adviser or a tool such as Vanguard’s Investor Questionnaire (money.us/ vanguardiq) can help you decide on the right level of stock exposure for you. While target funds are handy for many investors, it’s also possible you and your spouse will find it easier to tweak your overall asset mix by using individual stock and bond funds in your two plans, says Sloan. Bypass a target-date fund if fees are high. If your plan offers only high-cost target-date funds—with fees of, say, 1% or more—see if you have other options. “Perhaps your plan has a lower-cost S&P 500 index fund or an inexpensive bond fund,” says Freiburger. Check the funds’ expenses on your plan’s website or the annual expense disclosures your 401(k) provides.
Year 7
NOTES: Assumes 3% annual increases in pay, 5% a year investment returns, and 50% company match on up to 6% of pay. SOURCES: Callan Associates, David Blanchett of Morningstar
THE INNOVATION
Offering Personalized Investing Assistance the year in a fund’s name to understand the amount of risk it takes and decide if it fits your goals. The biggest source of both risk and return is its commitment to stocks, and, as seen in the graphic on page 84, some target funds hold a lot more stocks than others. If you want to play it safer, switch to a target fund geared to workers who are older than you. You might ditch the year-2030 fund for the one designed for people thinking of retiring in 2025 or even 2020. Conversely, to ramp up risk, opt for a fund intended for younger workers. Look at your 401(k) as one slice of the pie. You’ve also got to look beyond your work-
Not sure about the right mix of funds for you or how much you need to save? Your 401(k) probably offers a bunch of online tools to help. And that isn’t all. Some 36% of plans offer one-on-one financial advisory services, up from 28% in 2013, according to Callan. That is most commonly a free one-time phone consultation with the financial company that administers the plan. About 9% of plans offer more extensive service, often for a fee, Callan says. That is typically with a company, such as EY or Goldman Sachs’s Ayco unit, that is independent of your 401(k) provider. A subsidy from your employer could result in a lower cost to
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