I suspect many people out there know that they should be putting themselves in a good financial place for retirement … but knowing is, of course, only half the battle.
The “doing” side is just as important, and it’s lacking right now.
A nationwide survey conducted by MainStreet & GfK Roper found that 70% of millennials haven’t even started planning for retirement. The reasons differ, of course: Scarcity of funds in a given pay period, outstanding debts (like college loans or credit cards), or just fear or uncertainty about how and where to invest.
But there’s another reason why it can be difficult to take full advantage of 401k plans: lousy options provided by an employer.
That’s right: Just like bad healthcare plans, many employers offer lousy retirement plans for a variety of reasons spelled out nicely by U.S. News’ Emily Brandon.
What can you do to mitigate the risk of falling behind thanks to a leaky program? Here are some suggestions:
First and foremost, if you have the luxury to be choosy, make sure your company does offer a plan before accepting a job. Many companies can’t — or worse, won’t — offer a 401k plan. Especially if the latter’s the case, you’d better be getting a great compensation package and some keen outside investment advice.
Also, look to see how your company’s 401k match plan works. Sometimes, companies will match up to a certain point (say, 1% to 5%), but other times, they won’t match until you reach a certain threshold — say, they won’t start matching until 5%. This is bad news for people who want to put away some money but can’t afford to withhold too much from their regular paycheck.
Also examine the expenses associated with those plans. Other than market crashes or outright fraud, nothing does more harm to your investment returns than the fees and expenses contained in your 401k program.
Once you are ready to jump in, look at your options — but don’t always assume that more is more. Christopher Carosa, chief contributing editor of FiduciaryNews.com, suggests that “if you have more than 20 options, its probably not going to be a user-friendly plan … It’s going to put too much burden of deciding what to invest in on the employee.” Of course, having to do a little homework isn’t the worst of options — though if you want to be hands-off, consider target-date funds if you 401k plan provides them.
One last item: Once you’re in a 401k plan, find out what you have to do if you ever want out. It’d be nice to think you’ll be with your company your whole career, advancing your way to the top, and only needing to worry about your 401k at retirement, but that’s not the norm. So, research your 401k vesting periods, and find out what steps you’ll have to take should you find employment elsewhere and need to roll over your plan.
The unfortunate truth is that 401ks aren’t as simple as they’re made out to be.
Luckily, they’re not impossible, either.
Marc Bastow is an Assistant Editor at InvestorPlace.com.