Recent events have caused people to turn their backs on many of the things they once loved. Whether it’s from a revealing crash of an incident, a health conscious decision, or a movement of market and times, trends come and go. With every new report comes a change in the tastes of the people. But one of these things is not like the other ones. Unlike many of the fads, the 401(k) may not be something to be written off as a thing of the past, and you should think twice before making it a thing of your past.
In recent years the 401(k) has taken a few knocks. To some people the 401(k) is the ugly step sister of the pension plan, giving employers an easy way out of having to directly provide for the retirement of their employees. Also, one of the greatest assets of the 401(k), the company match programs, has become another casualty for many companies in this recessive war we continue to fight. In addition to that, many employees find themselves with a lack of flexibility in their plans in the slate of investment options chosen by the employers. These options are often selected based on how the employers can best reduce their costs, resulting in high fees for their employees. Furthermore, the 401(k) can easily become the old ball and chain, tethering an individual to a particular company in order to keep their plan in motion and avoid the hassle of a transfer.
Some companies even require employees to stay with them for a certain number of years or they risk losing the company’s match contributions.
With all those cons, you might find yourself thinking that a scandal of multiple affairs or an early heart attack don’t seem all that bad. But it’s important to focus on the advantages of the 401(k) that are unparalleled by most retirement plans.
- Take advantage of the perks inside your 401(k). Most of the time your funds are a healthy mix of actively managed funds with high fees and index funds that offer lower costs. Those high fees could amass to hundreds of thousands of dollars by the time you retire. The low cost alternatives can offer you a better long term option.
- Switching jobs can be an opportunity, not a struggle. The money in your current 401(k) can easily be rolled over into an IRA giving you some independence and control over your funds. This can save you money in fees with the ability to choose from a wider variety of investments. Also, some companies allow you to transfer your current 401(k) into their existing program. There are plenty of options for you if you are looking to escape your current job, but don’t want all your hard investing work going down the tube.
- Find a window to leave. If you are looking to switch jobs, look into the rules regarding the company’s match program and the term requirements of how long you have to continue with them to avoid losing their contributions. If its five more years, it might be worth it to just cut and run, but if you are just a few months shy, you might want to stick it out. Either way, it’s better to know where you’re at on the board than to hope and pray you’ve passed Go and can collect the $200.
Your relationship with your 401(k) is like a marriage. It has its tough times, but if you focus on the good parts, and put some work into making it a cohesive partnership, you can find yourself living happily ever after, possibly in a retirement home in Orlando. The bottom line is this: falling into a fad or trend can oftentimes lead to disappointment (we all remember the sad day when floral print satin shirts became a fashion faux pas) but make sure you put some thought into your future before you turn your back on your 401(k).
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Gregory Ricks and Associates 