How Do You Manage Your Retirement Plan?

Providing education for retirement plan participants is not the easiest task. For one, most people don’t want to be lectured about the inner workings of their 401(k) plan. When we present to participant groups, we often look out onto folks that seem distracted, worried, weary, or just overwhelmed. And while what we are saying is important, it feels like we are speaking a foreign language for most people. This is why we like to meet with participants individually, to ask them individual questions and address their specific retirement-related goals.

The number one question we get from participants is how to invest their retirement plan contributions. Despite a general lack of interest in the mechanics of investing for retirement, those who have opted into their employer’s plans want to know that they are doing the right thing, or at least not making a big mistake with their choices. The good news is that most investment options in retirement plans are selected to be a good mix of return and risk. And these days participants have more available tools to help create a professionally managed portfolio with little or no extra cost.

The first options, and those with the least barriers to entry, are targeted retirement date funds or specific asset allocation funds. Many plans use these ‘target date’ funds as their qualified default investment alternative (QDIA), which is the option you get if you don’t make your own choice at enrollment. Target date funds provide professional investment management of a portfolio that is designed to evolve as you get closer to retirement. In other words, if your target retirement date is relatively far away, you will have more funds that invest in stocks versus bonds. But that mix will shift over time as you get older, getting more conservative with your need to pull money out for cash flow needs. Keep in mind that there can be factors other than anticipated retirement dates to consider when selecting a target date fund.

Asset allocation funds are relatively static, aiming for an investment allocation based on risk tolerance (conservative, moderate, balanced, aggressive) or an investment strategy (growth, growth and income, income).  As a participant, you can determine what level of risk or goal you have and select one fund to deliver over time. These funds can either invest in individual stocks and bonds, or in other mutual funds.  As with target date funds, the portfolios are professionally managed to maintain a certain level of risk while attempting to achieve their stated objective. One thing to consider with a static investment allocation strategy is that the strategy does not evolve, so you may have to make changes over time as your risk tolerance and time horizon change.

Some retirement plans offer a managed investment service. Typically, these programs consist of model portfolios that are built using the core fund menu available to plan participants. The program works by participants completing a survey that determines the appropriate risk level and time horizon for them and then automatically investing in the model portfolio that provides the best match. Portfolio changes are made on a regular basis, keeping the participant fully invested and balanced according to the information provided. Participants using this program will pay an additional fee, which you can find on your annual fee disclosures, or when you sign up. The managed option is a good stepping stone when your retirement plan balances have grown significantly enough to benefit from a more personalized approach, rather than simply putting everything into one targeted mutual fund.

Your retirement plan may have a self-directed brokerage account option. Chances are if you selected this option then you have some definite ideas of how you want to invest your retirement dollars. If not, then know that you may be able to have these accounts professionally managed by an outside advisor for an additional cost. In terms of customization, this strategy is likely to be the most directly tailored to your means and goals.

Finally, West Financial is here to help you self-manage your retirement accounts. We recommend reviewing your retirement plan investment balances with us and making rebalancing suggestions at least once a year. We can also walk you through the process of making the changes online. Feel free to reach out to your relationship manager any time you want to review and rebalance your retirement accounts and/or discuss your retirement goals.

Meet Kristan Anderson, CEBS®, CFP® »

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West Financial Services, Inc. (“WFS”) offers investment advisory services and is registered with the U.S. Securities and Exchange Commission (“SEC”). SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the firm has attained a particular level of skill or ability. You should carefully read and review all information provided by WFS, including Form ADV Part 1A, Part 2A brochure and all supplements, and Form CRS.

This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product, security, or concept. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. You should not treat these materials as advice in relation to legal, taxation, or investment matters. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisers.