By Michelle Singletary, Washington Post Staff Writer, Saturday, October 9, 2010
Many employers have realized that their workers, who have largely become responsible for self-servicing their own retirement portfolios, need guidance so they can best allocate contributions to their 401(k) or other retirement plans. And many companies now offer professional advice - for free.
The problem is, some employees don't take advantage of the guidance, according to a study by the investment company Charles Schwab.
It's safe to say it's very difficult for people to have a well-diversified portfolio if they are doing it on their own.
Schwab looked at the behavior of employees participating in retirement plans it services and conducted a survey of more than 1,000 401(k) plan participants nationwide.
Seventy percent of respondents said their 401(k) was their only or primary source of retirement savings. But less than half felt confident they were making the right investment choices.
Most respondents said they would use free, personalized advice if their employer made it available. But when Schwab looked at the actual participant behavior in plans it services, fewer than 10 percent of people who have access to free advice took advantage of it.
A little more than a quarter of the respondents said they got their advice elsewhere. That's fair enough. But 26 percent said they were too busy dealing with day-to-day financial issues. Many people didn't think they had enough saved to warrant getting help. What was surprising was the 49 percent who said they wanted to have more than $100,000 saved before taking the time to ask for advice.
In analyzing the 401(k) plans it services, Schwab found that when employees took advantage of the free advice, it had a significant impact on how they handled their retirement plans. People realized they could save more. Seventy percent of workers who receive 401(k) advice make changes to their deferral rates, and their savings rates nearly double as a result, jumping on average from 5 to 10 percent of pay.
Listening to the advice meant greater diversification. The average participant who has not received professional advice is invested in fewer than four asset classes, where those who receive advice invest in a minimum of eight.
Employees who sought advice also didn't panic during the ups and downs of the stock market. Most plan participants who received advice saw their 401(k) portfolios rebound when the market rebounded last year.
It used to be that the company that managed your 401(k) plan couldn't give you anything more than the most generic advice about how to invest in the offerings of the plan. This is not the case anymore.
Employers can make arrangements for a financial services or investment company to provide advice, from how much workers could be saving to helping them figure out where to put their money based on their investment goals. Taking into account their own comfort with risk, workers can get advice on which funds to invest in, and how much to invest to meet their retirement needs.
The Schwab survey found that most respondents said they would seek help with retirement planning the closer they got to retirement. For many, that's just too late to correct any mistakes.
With something as important as your retirement savings, don't procrastinate. Whatever free advice is made available by your employer, use it.
http://www.washingtonpost.com/wp-dyn/content/article/2010/10/09/AR2010100903469.html?sub=AR
No comments:
Post a Comment