It’s open enrollment time, and — notwithstanding the many questions about ObamaCare — adjusting one’s 401(k) contribution is still the most complicated choice the majority of us have to make.
Many people are even more spooked about their retirement-plan choices than they are about next year’s health- care benefits, say researchers who conducted a recent retirement-planning poll.
About 52 percent of respondents “believe explanations of their 401(k) investments are more confusing than explanations of their health-care benefits,” according to the survey undertaken by the Charles Schwab brokerage service.
The danger, of course, is in the combination of the confusion of many participants and their reliance on 401(k)s as a primary retirement vehicle.
“To me, the biggest mistake is individuals not taking advantage of professional advice that may be offered within their 401(k) plan,” says Catherine Golladay, vice president of participant services for Schwab.
Golladay notes that a majority of employers offer some advice along with their 401(k)s. She added that those participants who use the service tend to feel more confident and get better performance from their funds.
A 401(k) plan, also known as a defined-contribution plan, has a major drawback — it requires participants to make choices.
But the 401(k) — unlike your grandparents’ defined-benefit pension plans, in which employers made all the choices — can include a big tax break: Contributed dollars to a plan can reduce one’s tax liability.
Yet many people don’t take full advantage of these breaks and could end up with a 401(k) balance that is inadequate.
“There is a retirement-saving crisis in this country,” says Raymond Mignone, an investment adviser.
Schwab offers these tips for avoiding mistakes and getting the most from a retirement plan:
- Be sure you are putting in at least enough to get the match. Many participants aren’t taking advantage of the full employer match.
- Enjoy the benefits of getting older. Anyone age 50 or older can contribute more dollars to 401(k)s than younger workers. In 2013, older participants can save an additional $5,500 on top of the $17,500 base limit.
- Choose 401(k) investment options with costs in mind. Plan participants must be told how much they pay for each investment option.