Should you blindly sign up for your company's 401(k) plan? No way! Not without some serious consideration, anyway.
It's easy to assume that your employer has your best interests at heart and will "take care of you." However, that's not always the case.
Let's take a look at three signs you'll need to dump your company's 401(k) plan (especially if you're already invested in it) right now.
Sign 1: Your employer doesn't offer a match.
If your employer doesn't offer an employer match, that's a great sign that you need to tuck tail and run. When you get an employer match, your employer contributes a certain amount to your retirement savings plan based on how much you contribute yourself.
It's true that some companies have temporarily stopped matching contributions due to the pandemic. If that's the case, don't dump your plan just yet, unless you keep reading this article and discover that your employer's plan doesn't offer other perks that every plan should.
However, if you've never been offered a match and your employer has no plans to change that, try to band together with your fellow employees and put together a request in writing. You can even do the research for your employer and encourage them to offer some basic 401(k) options (with a match!) for you and your colleagues.
If your employer simply won't offer a match, then you have no choice but to save your money in an IRA.
Sign 2: Your plan carries high fees.
Many, many 401(k) plans charge high fees that, unfortunately, chip away at your returns. It's a sad day when someone who has worked for 30 years at one company finds that administrative costs and investment fees have eaten up all his or her money. That just means less for you in retirement.
You may not even know how much the administrative fees affect your investments. If you don't, check. Now. If fees go over 1% (such as 1% in administrative fees), you need to consider some other options.
You may find that smaller employers often choose 401(k) plans with high expenses.
Sign 3: You don't have many fund choices.
Let's just put it this way: Some 401(k) plans offer a pretty pitiful array of fund options.
Most employers allow you to choose between an array of actively managed mutual funds and index funds. (You'll pay less for index funds than actively managed mutual funds in most cases.) If you only have access to actively managed mutual funds, you'll want to look elsewhere.
Let's say you can only choose between these five asset categories through your employer's 401(k):
- Money-market funds or stable value funds
- Core bond funds
- Large-cap funds
- Small-cap funds
- International funds
What if you want access to real estate investment trusts (REITs), emerging markets, commodity funds and on and on? Not having access to a diverse array of funds can affect your long-term goals.
You may face this issue at a large company or a small company, so don't assume that just because you work at a large company, you automatically have access to a large window of options. Get help assessing the extent of your 401(k) retirement plan options by consulting a separate financial advisor if you need help understanding your plan.
What to Do if You Have a Bad 401(k) Plan
In 2012, the Department of Labor required employers to disclose fund fees to employee participants annually. Do you look at these? Go for it, and then take action with these tips if you determine you actually do have a pretty crappy 401(k) plan.
Tip 1: Use index funds if at all possible.
Within your plan, can you switch to index funds? You might be able to make a bad plan into a good plan simply by switching to index funds, which cost a lot less than actively managed funds. However, even within index funds, make sure you're getting a good deal. Compare index fund fees in your plan to a low-cost provider like Vanguard.
Tip 2: Consider a brokerage window.
Have you ever heard of a brokerage window? A brokerage window offers a specific option within a 401(k) plan that allows you to buy and sell investments on your own through a brokerage platform. You may also hear your plan administrator call it a "self-directed option" or a "self-directed brokerage option."
You can choose among many low-cost fund options and exchange-traded funds through this brokerage window. However, know that you might have to pay a bit extra to use the brokerage window.
Tip 3: Talk to your employer.
Seriously consider talking to your employer about how to improve your 401(k) plan. Small companies usually present more of a risk than larger companies.
When you approach your employer, try not to appear combative or accusatory. Always assume that your employer chose your plan based on the best array of options available at the time.
You may want to propose putting together a task force to determine how to get better options for everyone in your company — including your employer.
Tip 5: Consider a combo strategy.
Let's say you're ready to dump your 401(k) plan — but not entirely, especially if your employer offers a match. Let's say your employer matches 50 cents on the dollar for up to 6% of your salary.
You still want to take advantage of free money, so consider kicking in 6% of your salary toward your retirement account. Then, open an IRA and max it out at $6,000.
Don't Settle for a Bad 401(k) Plan
Your company 401(k) plan, in theory, should offer a great option to save for retirement. Unfortunately, your company may not offer the best choice for your needs. Don't hesitate to put your money elsewhere — remember, you're preparing for your future and nobody else's.
Finally, reach out to a financial advisor if you're not sure which direction to turn. Many financial advisors have intimate knowledge of each company's 401(k) plans in your local area. Take advantage of their knowledge so you can effectively pivot when necessary.7 Retailers That Are Bucking the E-Commerce Trend
Once again it appears that the death of brick and mortar retail appears to be exaggerated. First-quarter earnings are showing that many retailers that rely on in-person traffic for a considerable chunk of their business are seeing a rebound in sales. And many are planning to open stores in 2021.
This isn’t to say that e-commerce is going away. In fact, a common feature for many of these stocks is that they either developed or enhanced their digital footprint during the pandemic.
This special presentation focuses on retailers that are planning to add to their brick-and-mortar footprint in 2021. And some are planning to do so by a substantial margin. Once again, this doesn’t signal a transformative shift in the overall trend, but it does mean that for the foreseeable future, brick and mortar will have some relevance.
View the "7 Retailers That Are Bucking the E-Commerce Trend"