401(k) Open Enrollment

It’s that time of year when companies ask their employees to choose their health care plans for the coming year. But you might want to plan for your financial health at the same time.

Open enrollment season gives employees the opportunity to look at a company’s health care benefits and options and decide which is going to work best for their family. But it’s also a good time of year for employees to look at their 401k plan and make some changes that could boost your investment returns next year and for many years to come.

Do you rebalance your 401k on a regular basis?

“You mean adjust for risk? Yeah, I went to an index fund. I was in a money market so I increased by my risk but I felt the market was right and took advantage of it. And I feel good about it.”

Except for wondering if they’ll be able to retire at all, most employees don’t spend more than a few minutes thinking about their 401(k). That is, if they even participate in the plan. According to a recent survey, just two-thirds of eligible employees take advantage of their company’s 401k plan, and less than 10 percent of those fund their account to the maximum level.

“The most they are doing is contributing up to the level where they’re getting the company match. And it’s usually not enough for the typical worker who needs to save for retirement. They probably should be saving a lot more than up to 6 percent or whatever the match thresh hold is,” says Lori Lucas, Hewitt Associates, director of research.

“They are talking about having no money when I retire, so I’m going to have to have something.”

But a few simple moves can boost your retirement account investment returns. Start by raising the amount of your contribution. Most companies offer forecasting tools that employees can use to figure out how much cash they’ll have in retirement.

“The other thing you want to do is make sure the mix of funds. Your stock funds, your bond funds, your stable value funds, are correct for the amount of risk you know you can take. And also that they’re appropriate in terms of the diversification. You’re not putting all your eggs in one basket in one fund. It’s a well-diversified mix of funds,” Lucas says.

Once you get a look at how much your medical expenses are next year, you might want to keep your 401k contribution where it is, or lower it to free up some extra cash to pay those medical bills. But that would be a mistake.

“If you think how much health management costs are today, that increase is likely to continue into retirement as well. So that’s probably going to be paid out of your 401k plan, and you’ll want to make sure you have enough to cover that increase,” Lucas says.

So do what you can increase your contributions now.

“If you just make a small increase, like 1 or 2 percent, it’s amazing how much impact that can have on your long-term accumulation. So if you can’t save that extra 4, 6, or 8 percent today, maybe you can get there over time,” Lucas says. If you don’t have access to a company-sponsored retirement plan, you may be eligible to save in a Roth IRA, conventional IRA, or if you’re self-employed a simple IRA or Keogh plan.