Ignorance isn?t bliss ? in fact, it can ruin retirement.
Many people either too aggressively or conservatively invest with their 401(k)s, Kirk Kinder, a member of the National Association of Personal Financial Advisors, told The Examiner. A 401(k) is defined as a plan that allows employees to invest pre-tax dollars into stocks, bonds or money markets, and is usually matched by employers. So if Marylanders have dreams of living out their days on a beach with a drink in hand, or traveling cross- country in an R.V., tomorrow starts today for 401(k) investing.
“The main mistakes we see by people who participate in their retirement plan is in the area of asset allocation,” said Josh Itzoe, a principal with Greenspring Wealth Management Inc., in Towson. “When people are overwhelmed they have a tendency to do one of two things: They either invest all their money in the stable value or money market account, or they pick the one or two funds that have had the biggest returns over the past year.”
Kinder, who works for Picket FenceFinancial in Bel Air, emphasizes that it is never too early to start saving. An example he used was of an investor who contributed the max allowed to a Roth IRA from age 20 until 29. Assuming the same rate of return, that person would actually have more to retire with than someone who saved from age 29 to 65. Kinder also recommends a strong plan of attack, with an investor saving 10 percent during their 20s. If they haven?t started saving till later, he recommends 15 percent during someone?s 30s or 20 percent during their 40s.
But there are plenty of pitfalls, and 401(k)s require monitoring, sometimes reinvestment altogether.
“When folks leave a company they tend to cash out their 401(k)s,” said Peg Downey, a certified financial planner from Silver Spring. “Not only does that mean that they use their long-term savings for current expenses and severely [danger] their future retirement, but they virtually always ignore the tax ramifications of this move and get themselves into a big problem.”
And reading the fine print can be just as important.
“Another major mistake we see are employers who implement plans that have exorbitant fees and expenses, many of which are often hidden or disclosed,” Itzoe said. “The impact of an additional 1 to 2 percent over time can be the difference between experiencing a comfortable retirement or a terrifying one.”
More Info
For more information on 401(k) investing, you can visit:
www.nasd.com/index.htm
www.401khelpcenter.com
www.investmy401k.com
