Luke’s Story: Help for 401(k) Investing
Part II of III
You may remember from last week’s column, that “Luke” had asked me about alternatives to contributing to his 401(k). Besides being unsure about which investments to choose in his employer’s 401(k), an insurance agent had shown him an “investment plan” using life insurance. Understandably, Luke was torn and confused on what to do.
Before we touch on the creative uses of life insurance as an investment or retirement savings vehicle (that’ll be next week’s column), let’s first look at making the most of the investment options found in many 401(k)s, 403(b)s, and 457 plans. Under federal guidelines, employers offering such plans are obliged to make a variety of investment choices available so employees can get adequate diversification and tailor investments to individual goals and risk tolerances. That means there are typically ten, twenty, or more choices available. From my perspective, the more choices the better, but too many can be overwhelming. This is where the financial adviser for the plan is supposed to help by offering group education meetings and possibly individualized guidance. Of course the amount and quality of advice from the plan’s adviser may vary substantially or even be unavailable. Some plans offer online resources where a “robot” will tell you which investment funds and overall allocation are “right for you.” For those looking for more personalized advice from a human adviser, there are two choices: Option 1. Ask your employer if he’d be willing to provide a new adviser to help employees individually (I know this service is available and growing in demand because we do it at my firm). Option 2. Find your own adviser for guidance on your retirement plan choices.
Self-Selected Guidance: Many people do not know that they can pick their own adviser to help guide them with their employer-based retirement plan investment choices. You can pay an adviser by-the-hour for consulting as needed. You can also pay an investment adviser to manage your account on an ongoing basis. With the proper arrangements and safeguards in place, your adviser can access your retirement account and manage it for you, including setting the appropriate overall strategy and mix of investments, selecting the initial investment funds, re-balancing the funds to maintain adequate diversification, and replacing funds as necessary.
The Point: Aside from home-equity, employer-based retirement accounts are often one of the largest assets for American workers and sources of income for retirees. If you can’t get good advice at work, find and pay for good advice yourself. The size of your retirement nest egg could depend on it!
David D. Holland, a CERTIFIED FINANCIAL PLANNER™ practitioner, hosts a weekday radio show at 9AM on AM1380 Ormond Beach, AM1230 New Smyrna Beach and AM1490 Deland. He has also authored two books in his Confessions of a Financial Planner series. Holland offers investment advice through Holland Advisory Services, Inc., a registered investment adviser in Ormond Beach. He can be contacted at (386) 671-7526. Email your financial questions to info@DavidHolland.com.