Retirement: Getting back on track
It's time to re-examine your retirement plan, especially in light of the financial turmoil over the past 18 months.
With year-end investment statements now in the mail, it’s an ideal time to take stock of your retirement plan, said Tom Lauricella in The Wall Street Journal. That’s true every year, but especially important given the shock that most retirement portfolios have suffered over the past 18 months. “Perhaps the biggest disappointment” was that the major stock markets “suffered losses so steep that, even with the market bounce since the spring, many retirees still are in the hole.” Resist the temptation to pile money into stocks just because they’re on the upswing and seem to promise a chance to recoup quickly. Instead, consider asset-allocation funds, which “allow managers to aggressively play defense” by shorting stocks, buying gold, and using other hedging strategies.
Also take a close look at the nuts and bolts of your 401(k) plan, said Amy Feldman in Bloomberg BusinessWeek. “Is your 401(k) cheap or expensive? Does it offer good investments or mediocre ones?” Such considerations are especially crucial if you’re relying on an employer’s 401(k) program to fund your retirement. To see how a plan stacks up against others in the industry, check out Brightscope.com, a San Diego start-up that rates about 30,000 plans using “hundreds of factors.” The scores aren’t perfect, since most are based on public information that could be out-of-date. But the “analysis has been boiled down to a level anyone can understand.”
If your plan earns low marks because of high fees, be “especially vigilant” about seeking out lower-cost options, said Penelope Wang in Money. A long-term 401(k) investor who pays 1.5 percent in annual fees will retire with 20 percent less than someone who pays 0.5 percent in fees, according to the U.S. Government Accountability Office. Index funds or institutional funds will be your best bets. “Stuck in a plan with high fees and no solid low-cost fund choices?” Invest “just enough” in your 401(k) to take full advantage of your employer’s matching funds (that is, if it even offers matching funds). Then contribute as much as you can to a traditional IRA or Roth IRA via an online brokerage account or a fund company such as Vanguard, which offers many inexpensive options.