Barry Glassman, CFP

Barry Glassman, CFP®

His vision for starting GWS was to deliver investment strategies and wealth management services typically available at the highest levels of wealth. Today, clients benefit from these sophisticated financial services targeted to meet their unique needs.

When you first start a job and become eligible to contribute to a 401(k) or employer-sponsored retirement savings plan, you fill out a few forms, decide how much you want to have deducted from each paycheck and pick some investment options. Then each month, like clockwork, money is taken from your paycheck and put into your retirement account automatically. It’s easy to just set-it-and-forget-it, but this mindset can lead to costly mistakes.

That’s why one of the first things we do when we sit down with new clients at Glassman Wealth Services is to review their 401(k) or other employer-based retirement plan. We want to make sure that sure that they are not making these potentially costly mistakes, and show them how to avoid them in the future.

1. Reconsider automatic enrollment in a target date or age-based fund

If you don’t choose specific investments offered by your plan for your retirement dollars, then your plan will automatically enroll you in a target date or age-based fund. These funds consider your current age and a theoretical retirement age of 65, and automatically adjust their investment allocation becoming more conservative the closer you get to your retirement age.

But the risk in these funds can vary greatly and may not be appropriate for you depending on your risk tolerance and goals. For instance, if someone wants to retire in 20 years, one target date fund may have a 50% stock allocation and another may have 70% of their investments in stocks. If you are invested in a target date fund, it’s a good idea to look at the overall investment allocation to make sure you are comfortable with it.

2. Re-evaluate your investment choices

If you did select investments when you enrolled in your 401(k), but haven’t looked at them in a while, that allocation may no longer be appropriate. You may have taken on more risk than you intended, especially if you haven’t rebalanced your account. (See #3.) There may be additional investment options with lower fees or an allocation that is a better fit for your goals. Many employers and retirement plans offer access to model portfolios and financial advice to help you stay on top of your retirement account.

In a recent report by Aon Hewitt, a global leader in risk management and human resource consulting, they found that 401(k) participants who use professional investment help are better off than those who don’t.

Listen to Barry Glassman’s WTOP interview: Why you shouldn’t ‘set and forget’ your 401(k)

3. Set up automatic rebalancing

One of the best, easiest and most underutilized features to put in place is automatic rebalancing. In fact, according to Aon Hewitt, just 9% of 401(k) participants have set up this auto-rebalancing feature where it is available.

As an example, let’s say that a participant chose an allocation of 50% stocks and 50% bonds in their 401(k). Given the heated stock market, over time the percentage of their account allocated to stocks might grow to 70% or more, exposing them to additional risk.

By switching on the rebalancing feature in their 401(k), the account would automatically sell stocks and buy bonds to return to its intended allocation. Think of it as a sell high / buy low feature. Automatic rebalancing helps to keep risk in check and can potentially enhance returns.

4. Review your beneficiaries

Probably the most common mistake is filling out those beneficiary forms, and then forgetting about them. This one-page document, not your will, decides who gets your retirement account. Should something happen to you, your family members may be shocked to find out that your ex-wife gets the 401(k) money.

Since retirement plan beneficiaries are determined by who is named on your beneficiary designation form, if you got married, had some kids, or got divorced, chances are it’s out of date. Most plans give you online access to these forms so making changes is easy to do.

Automatically contributing to a retirement account is one of the best ways to fund the lifestyle you want to have in retirement. Periodically reviewing your 401(k) or other retirement plan will keep those plans from getting derailed.

If you would like to talk to us about this or retirement planning in general, please Contact Us.

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