With the New Year approaching, now is a great time to review your company-sponsored retirement plan and make sure your retirement future is on the right track. Many investors have only looked at their 401(k)/RRSP plan once – the day they enrolled. However, in light of ongoing economic uncertainties, you may want to consider getting proactive about your financial situation by avoiding these five 401(k)/RRSP mistakes in the New Year.
1. Not updating beneficiary information.
When you signed up for your retirement plan, you were asked to choose a beneficiary, someone who would receive the account balance in the event of your death. However, as time goes by and circumstances change, you may want to rename the person or people that you listed. For instance, if you have gotten married or are no longer married and want to name a new beneficiary, you would need to update the information for your employer. Depending on your personal situation, it’s important to make sure your listed beneficiary is up-to-date.
2. Using the brokerage option without understanding how it works.
Many company-sponsored 401(k)/RRSP plans are now adding a self-directed brokerage option that allows employees to use some of their retirement savings to invest in stocks or mutual funds that aren’t on the employer’s primary list. Although investors will have the freedom to allocate their assets, they must understand how the self-directed option works. They will need to consider the company’s limits on stock trading, the brokerage fees, the personal time it will take to monitor such investments and the inherent risk, especially if there isn’t proper understanding.
3. Not increasing contribution rates each year.
Now might be a good time to review your contribution percentage and consider increasing it ahead of next year. Many RRSP/401(k) investors just choose an arbitrary amount and less than 50 percent of employees calculate how much they should save by the time they retire. Calculate your own retirement needs and choose an amount based on reaching that number. As each year is a year closer to retirement, increasing your contribution rate on an annual basis will help you achieve your desired retirement number.
4. Missing out on employer benefits (advice or the match).
Make sure to contribute enough to receive the full company match and if you are unsure how much that is, use a contribution calculator. In addition to knowing your company’s matching rate, make sure you are aware of all of the benefits the plan offers. For instance, employers may add extra services, like investment advice, to help keep you on track toward your retirement goals. Plan sponsors make updates to retirement plans regularly and if you are not paying attention, you could miss out on important opportunities for a long-term strategy.
5. Not considering fees.
You should be aware of every plan fee and you should know how those fees impact your bottom line. In 2012, the Fee Disclosure Act, which requires quarterly fee disclosure reports to plan participants, will go into effect. This will make accessing fee information easier, but don’t let fees discourage you from participating in a 401(k) plan. All retirement accounts have fees, so don’t wait until next year to learn about the fees in your plan. Review your account statements, the summary plan description and your plan’s annual report for more information.
If you’re contributing to your retirement savings then you’ve taken the first steps to achieving your retirement goals. Use these tips to stay proactive with your long-term goals. Take control of your strategy and spend just a few minutes to make sure you’re getting the most out of your 401(k).
Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.