5 questions for 401(k)
investors to ask now

Am I saving enough?

The rule of thumb among providers of 401(k)s and other defined contribution plans is that you should be saving at least 10% – and some say 15% – of your overall income each year for retirement. If that sounds daunting, try contributing what you can – just be sure to start now. After all, you’re not losing the money – you’re simply using it to invest for your own future.

 


What can I do to make saving and investing easier?

Increasingly, plans are expanding their “auto” features, such as automatically increasing your contributions by 1% a year. Some plans will even automatically boost what you save starting at age 50 to allow for extra “catch-up” contributions. Others are doing “reenrollments,” meaning they are moving longer term employees from outdated default investments into newer strategies that are often lower cost and more appropriate for today’s markets. If you have such features available, consider opting in – not out.

 


I don’t want to lose money if stocks keep on going down. Am I better off moving to cash or something safer?

If big swings in the markets make you consider getting out, or if you simply want help with rebalancing, take a look at a target date fund (TDF). Such vehicles generally invest more assets in equities earlier in your career, then gradually shift into fixed income near retirement age. Researchers have found that the real key to successful retirement outcomes is consistent, long-term savings – and staying invested in good times and bad. In 2016 so far, the news has swung widely both directions, with markets falling in China and the U.S., while the most recent unemployment report was 40% better than expected.

 


Why all the noise around interest rates going up? Should I do anything about it?

In December, the Fed announced its first rate increase in nearly a decade. While the move was small, some retirement investors started wondering what it would mean for their bond investments. The short answer is: Probably not a lot. Whether you should care depends on the role that fixed income funds play in your 401(k). If your main goal is to mitigate risk in equity funds, traditional bond investments remain an appropriate choice.

 


How do I choose the funds to invest in?

When you invest in a 401(k), as with any big purchase, do your homework first. In this case, you’re weighing both fees and performance. Index funds are typically the lowest costs – but in times of market stress, having a component of your portfolio managed by an active manager can potentially mean better risk management.