Your Retirement Plan – Did You Just Get Your Year-End Statement for 2019?

Now is the perfect time to review your employer-sponsored retirement plan accounts such as 401(k)s, 403(b)s, etc. 

If you haven’t received your annual year end statement by regular mail, e-mail or online, you should be getting it soon. Don’t just toss your statement in the file cabinet or in the recycle bin or even delete that e-mail. This year-end statement has important information and provides you with an ideal tool to take inventory of your most important retirement savings vehicle.

Here’s what to look for when reviewing your statement:

1.   Make sure you are contributing enough to get your employer’s match.

First things first…check to see how much you are contributing to your retirement plan. Your statement should show the percentage of your income that is being applied to your plan each pay period. Is it enough to get your employer’s match?

For example, many employers will match up to 3% of an employee’s contribution to the plan. Therefore, in this example, if you contribute 3% of your income, your employer will also contribute 3%, making the total contribution 6%.

Taking advantage of your employer’s match is a “must-do” strategy. You don’t want to leave free money on the table. It will also have a great effect on the long-term growth of your retirement plan account.

2.   Increase your contributions if you can, even if it’s just by 1%.

You probably won’t even notice the effect in your paycheck from this small of a contribution increase, but consistently contributing and adding to your plan will have the largest impact to the growth of your account... and it’s something you can control. Most plans allow you to make percentage changes directly online and if you ever need to lower your contribution percentage, you can always do so.

3.   Review your account performance.

Your statement will show your total return for the 2019 year. It’s important to take this number and compare it to market benchmarks. This comparison will give you a good indication if your investment choices are meeting industry standards. Here’s what some common market benchmarks did in 2019:

Benchmarks - 2019 Total Returns

S&P 500: + 31.49%

Dow Jones Industrial Average: + 25.34%

MSCI World Index: + 25.19%

Barclays US Bond Aggregate: + 8.72%

Moderate Growth Portfolio: (60% S&P 500, 40% US Bond Aggregate) + 22.38%

Unless you are within 2-3 years of retiring, your retirement plan should have grown close to 20% for the full year of 2019. If it didn’t, you need to take a closer look at the investment options you have chosen. You may be in some poorly managed funds, invested too conservatively or have an asset allocation that is not properly diversified.

4.   Evaluate your account’s asset allocation and diversification.

Your statement should provide a breakdown of how your investment choices are allocated. For example, you may have 50% in one fund, 30% in a second fund and 20% in a third fund. Regardless of your current mix, you should have exposure to all, or to most of the main asset classes or fund categories your plan offers. These fund categories typically are labeled by asset size and type. Examples include, Large Cap, Bond, Mid-Cap, Small-Cap and International.

Spreading your investments out among different asset classes is called diversification. Instead of putting all your investment eggs in one basket, you’re putting them in a variety of independent baskets. Diversification is a key component to managing investment risk.

It can provide a better chance of capturing market gains while also lessening declines that may occur in one or more asset classes. Asset allocation is best done by an investment professional. If your plan has a representative assigned to your retirement account, please contact them for assistance.

5.   Are you invested in a target date fund?

Many employer sponsored retirement plans use target date mutual funds as their default investment options. Check your statement and review the funds in which you are currently invested. Most target date funds have a future date in its name. For example, if you planned on retiring in approximately 20 years, you may have selected a 2040 fund.

Target date funds are designed as simple funds for the average investor; however, few investors are truly average. These funds use a cookie cutter approach that may not match your risk tolerance or overall retirement goals.

They also may not be flexible enough to meet specific life events or react to changes in market conditions. Spreading your investments between funds representing different asset classes, (as discussed in the previous section) may be the better option.

6.   Are you getting statements for retirement accounts from previous employers?

These old retirement accounts need to be addressed. There are many options, but consolidating these accounts into a single IRA or retirement plan should be considered.

It’s easy to ignore, but your retirement account statement is a valuable tool. When looking at the right information, it provides a periodic status check on your most important retirement savings asset.

If you need help with your retirement account, find out if your plan has a financial advisor assigned to your account. If one is not available, please feel free to contact me.