By Ed McClure, CFP®, PPC®
One common frustration we hear from both employers and employees relates to the inability to get answers to your most burning questions about retirement planning. Part of the problem stems from asking the wrong questions, but, more commonly, it’s asking the wrong people.
If you’re in the process of signing up for a 401(k) for the first time, for instance, you might not know if you are utilizing your plan in the best way. It may seem natural to ask the plan administrator what to do, but, unfortunately, plan administrators aren’t allowed to give financial advice or recommend investment strategies.
Let’s take a look at five questions your plan administrator can’t help you answer—but that your financial advisor can.
Which Fund(s) Should I Pick?
Deciphering your plan options can feel like reading a foreign language if you don’t have a financial background. Your plan may offer small- and large-cap funds, growth funds, bond funds, stock funds, index funds, international funds, and more. You’re not alone if you look at the list of options and think to yourself, “How the heck am I supposed to figure this out?”
Unfortunately, your plan administrator is not likely to offer much help, aside from directing you to a brochure or an article with general information. Selecting the right funds is where a financial advisor comes in.
Side note: Be wary of target-date funds. It may seem like a simple plug-and-play option to select a target-date fund based on when you want to retire, but not all target-date funds are created equal—there are even some bad ones.
I Want to Take a Loan Against My 401(k). Is That a Good Idea?
Taking out a 401(k) loan is one way to access cash, but I typically only recommend doing so as a last resort. There are often better options—but a plan administrator can’t help you figure out what they are. Also, I’ve found that people often don’t understand the full implications until after the fact. You lose the returns on the money you pull out, and, if you leave your job for any reason, the money has to be repaid in full (or you risk a 10% penalty for early distribution, which may be unavoidable). If you need cash for a major purchase, such as a leak in the roof or a replacement for your car with a failed transmission, a financial advisor may be able to help you figure out a better way to get your needs met.
Should I Be Worried About the Market?
During the recession of 2008 to 2010, I got numerous phone calls from people who thought they needed to pull their money out of the market. I almost always told them to stay the course, as reacting emotionally to the market leads to making bad decisions. Today, you may be wondering how inflation, gas prices, or labor shortages might be affecting your future and if you should change your plan investments. Things are a bit more complicated today, but the same principles remain. If you’re concerned about the state of your retirement plan, a financial advisor can help you understand the real impact of what’s happening in the market as it relates to your investments and your long-term goals.
When Can I Afford to Retire?
This is the real question that I find most people want to answer. There are countless variables to look at, most of which are outside the scope of your company’s retirement plan. You’ll need to consider your current and future household expenses, family needs, current and potential health problems, and other income sources outside your job.
Also, it seems that many people don’t know how to think through the question of what retirement will look like for them and what to expect. Some people discover that working for just two more years can make an enormous impact. On the other hand, you may need to figure out ways to accelerate your timetable. This is where a financial advisor comes in.
What Else Do I Need to Do?
In addition to your retirement plan, there are other options and products to consider, such as insurance (life, disability, and long-term care), how to use your HSA or FSA optimally, and how to manage other investments you might have. Your retirement plan is an important piece of the financial puzzle, but it’s only one tool in your toolbox. You might be considering whether to put money into a 529 plan for your children’s college education, when to buy a new home, and/or how to make other decisions that will have a long-term impact on your family’s future. Creating a financial plan involves combining all these factors and adjusting as life happens.
I’m Here to Help
If you’re having a hard time understanding your plan options or figuring out whether you’ve covered all your bases, I can sit down and go over the big picture with you. I’m familiar with all different types of retirement plans, and I’ve advised clients with situations ranging from the simplest to the most complex. Give me a call at (760) 607-0611 or email [email protected] to set up a consultation.
About Ed
Ed McClure is a CERTIFIED FINANCIAL PLANNER™ practitioner, Professional Plan Consultant® (PPC®), and founder of McClure Wealth Management. With over 25 years of experience, Ed works with business owners who want to maximize their retirement plan benefits, businesses that need help setting up and managing a 401(k) for their employees, and families who want guidance while planning their futures. He is known for simplifying complicated and intimidating topics and making wealth management concepts easy for others to remember and understand.
Ed has established himself as a trusted resource for business owners and individuals, and his mission is to help his clients achieve the financial independence and well-being they deserve so they can give their time and energy to the people and things they love. He has a bachelor’s degree in finance from the University of Illinois. In his spare time, Ed conducts financial workshops for the Just In Time for Foster Youth organization, which helps equip young men and women as they come out of the foster care system. He also loves to travel and spend time with his favorite people. To learn more about Ed, connect with him on LinkedIn.