Retirement

Protecting Your Pension & 401(k)

by Nancy Osborne, COO of ERATE®

Planning for retirement is not an easy task for most of us, however the government has passed the Pension Protection Act in the hopes of helping us achieve our goal more easily.  The act, which was passed into law just last year, is considered the most comprehensive retirement reform legislation in the past 30 years.  The act encourages businesses to set up 401(k) accounts automatically and to enroll employees by default unless the employee specifically chooses to opt out of participating.  It has been shown that by automatically enrolling employees in company retirement plans that participation rates increase dramatically, by almost 25%.  For those of us who are not otherwise inclined to do what's good for us on our own, the government has made it somewhat easier in making the right decision the automatic one.  

While the government, along with your employer, may guide you towards participating in a 401(k) plan, you have to do your part by being fully informed of the investment options available within the plan and to consent to contributing the maximum you are allowed. You must also take advantage of every matching dollar your employer has agreed to contribute on your behalf as almost 80% of plans have an employer matching component to them, it is thought that if this match were not otherwise offered, participation levels in these plans would drop by as much as 10%.  This may not appear to be a high percentage drop out risk, but no matter how you look at it, matching contributions can be an important tool in recruiting and keeping employees. Be aware of company offered investment options which are too conservative for you and watch for your company's default contribution percentage as it likely tops off at 10%.  Unfortunately for most Americans, a 10% cap will not permit them to come close to reaching the current maximum dollar contribution of $15,500.   

When selecting amongst investment options allowed under your specific plan, you want to be certain your choice is based on your age and therefore your ability to weather risk, of course the younger you are the more risk you can safely take on.  So younger workers must guard against positioning their portfolios too conservatively for their age and corresponding risk level and older workers need to guard against being too over-weighted in equities. Those in their 20's and 30's may well be advised to be fully invested in stocks and as they advance into each subsequent decade in age, they'll want to divert a growing portion of their portfolio into bonds to help manage their overall portfolio risk.  An asset allocation plan should also come into play as one portion of your portfolio grows and overshadows another, you would be well advised to rotate investment funds into an alternate under-weighted investment category.  Another crucial investment consideration is to ensure that you are never over-invested in your own company's stock for this can be a common and potentially fatal mistake in managing your 401(k) account.  Many investment advisors recommend never maintaining more than 4% of your total investment portfolio, retirement or otherwise, in any one stock. 

Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.

"I am addicted to Bloomberg TV" says Nancy.

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