I recently received an email from my employer’s 401(k) provider, Fidelity, highlighting some retirement savings tips for 2021. After review, I thought these were helpful to explore further.
Firstly, the email led off with:
“To: U.S. employees contributing 6% or more to their account [Company Name] 401(k) plan”
I immediately thought, “are people who aren’t contributing the full match amount NOT receiving this email?”
Perhaps the company, or even Fidelity, assumed employees who don’t want the free money also wouldn’t care much about not getting some sound advice. I do! I’d be upset about not receiving this email.
The email then went on:
“With 2020 behind us, why not tackle some important financial to-dos to help you achieve your financial goals.
Enjoy the peace of mind of knowing that you have taken a step this year to improve your retirement savings!”
Here are some suggestions that they highlighted.
1) Contribute as much as possible to your 401(k) account
Consider increasing your savings rate in 401(k) each year. This is perhaps a no-brainer if you’re able. However, we all have various competing priorities and financial responsibilities. Easier said than done.
One way to make it feel less painful:
“If offered by your employer’s plan provider, you can also elect to have done it automatically by enrolling in the Annual Increase Program when you set your contribution rate.”
If you were automatically enrolled in 401(k), revisit this and consider setting a higher contribution rate.
Overall, 401(k) – and those of other account types – continue to rise. Take advantage!
2) Consider whether Roth 401(k) contributions are right for you
When you contribute to a Roth 401(k), your contributions go in after taxes and you don’t have to pay taxes when you retire if your withdrawal/distribution meets certain conditions.
However, before contributing, you should review an overview of the Roth 401(k) features in 401(k) on your employer’s plan provider for more information. There are pros and cons.
Some providers also offer workshops or consultations that can help you understand the Roth features in 401(k) and the role of tax diversification for future retirement income sources.
Related: How I Got to Averaging $1,000 a Month in Passive Income
3) Invest your 401(k) account appropriately
The email noted,
“as you review your investment decisions, you’ll want to consider a longer-term view of your investment allocations and maintain a diversified investment strategy based on your own personal and financial circumstances.
This may help you benefit from a future market recovery.”
Fair point.
Generally, your employer can’t advise you on financial decisions affecting your retirement plans – my employer recently went as far as to relabel 401(k) documents “suggestions” vs. “education”.
The email then emphasized that:
“One of the most important things you can do is to continue contributing to 401(k). In a down market, contributions will actually buy more shares in the fund(s) you’ve selected.
If you continue contributing, depending on your own investment horizon and financial circumstances, you are positioned to benefit from any potential future gains in those fund(s).”
This is a great point where dollar-cost averaging (DCA) can play an important role.
Fidelity, among other 401(k) or similar retirement plan providers, also offers access to their Financial Engines’ do-it-yourself On-Line Advice tool at no cost to you to get personalized investment recommendations.
Of course, Fidelity also offers a service if you’d like assistance to help manage the money within the 401(k):
“…if you prefer to have someone manage your 401(k) account for you, enroll in Financial Engine’s Professional Management program for a fee that is deducted directly from your 401(k) account.”
I’m certainly not advocating against professional wealth management. I just don’t believe paying a fee for someone to allocate a 401(k) is worth the expense.
A little education will not only save someone that fee, but also likely pay dividends in more ways than one down the road through financial education.
Looking Back and – More Importantly – Ahead
I appreciate the basic, yet sound, suggestions – if not technically advice – from this email.
I’m just hoping more people got it than those contributing 6% or more.
Even taking one of these actions will likely lead to an improved outcome for you.
Readers, do you currently manage your own 401(k) or similar employer-sponsored retirement plan? Does your plan provider offer similar options or services?
Related:
5 Ways to Balance Account Types To Balance Life’s (Un)known Milestones
Land(less) Landlording: How and Why We Use REITs
Back to Basics: Advice I (Almost) Didn’t Tell a Friend
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Nice article to remind all of us the importance of remembering the basics. Much easier to delete an extraneous email than not getting one at all and missing/forgetting something important.