With the recent stock market crash, you might be tempted to throw away your 401k account statement without a second glance. But taking a careful look at your statements can provide key insights into whether you’re on track to meet your retirement goals.
While every statement will look a little bit different depending on the plan sponsor and plan administrator, most will offer the same information. Below are the five most important numbers to look for.
5 Numbers to Look for in Your 401k Statement
Americans’ 401k participation and balances hit a record high of more than $100,000 last year, according to a report by Aon Hewitt, but few retirement plans are being actively managed. Even if your account’s recent performance is less than stellar, there’s a lot of valuable information you can draw from your 401k statements. “Checking in on your accounts at least quarterly is a good idea,” said Katie Taylor, a director of thought leadership at Fidelity Investments.
1. Your Vested Balance
Keep in mind that the total balance of your 401k is not necessarily all of yours to keep. While any contribution you make to your 401k is yours — and thus, part of your vested balance — contributions on behalf of your employer could be subject to a vesting period. Your company can take some of their contributions back if you leave your job before your vesting period is up.
Details vary by company, but typically the vesting period lasts for several years, during which time the employee either becomes entirely vested or sees his vested percentage gradually as a percentage of employer contributions each year. If you’re thinking of getting a new job but have a large balance that’s about to vest, it might make sense to wait until after the vesting period before making the jump to a new job. You might otherwise lose a sizable chunk of retirement income.
To see how your current savings are setting you up for retirement, plug your vested balance into a 401k calculator. “That balance is a useful starting point if you want to do a retirement wellness check,” said Christine Benz, director of personal finance at Morningstar.
2. Your Asset Allocation
Your asset allocation is often displayed as a pie chart on your 401k plan statement. This portion of your statement shows you your portfolio mix and gives you a snapshot of what portion of your account is in stocks versus bonds and other investments. Ideally, you’ll select an asset allocation that works for you, based on your time horizon and risk tolerance, when you first sign up for a retirement plan.
“Your asset allocation is very important to the growth of your assets,” said Laurie Samay, an investment analyst with Palisades Hudson Financial Group. “So it’s an important thing to monitor.”
Try to stick with your preferred asset allocation regardless of what’s happening in the market day to day. Rebalance your portfolio once a year or so if market fluctuations have your allocation out of whack. Only 15 percent of 401k savers rebalanced last year, Aon Hewitt reported. Some plan providers allow you to opt in to their auto-rebalancing feature, which will adjust your investments to stick with your target.
Every few years, re-evaluate your allocation strategy. In general, your investments should become more conservative as you approach retirement, since you’ll have less time to make up for money lost if the stock market takes a plunge right before you quit working. If you don’t feel comfortable selecting your own funds and rebalancing, consider putting your money into a target-date fund, which automatically rebalances investments based on your projected retirement date.
You can also work with a financial planner to select an appropriate mix of investments. Many 401k plans offer participants access to professional financial guidance as part of their benefits package.
3. 401k Plan Fees
Retirement plan fees is the money you pay to those who manage your accounts. Fees can take a significant bite out of your returns over the long term. By law, plan administrators have to tell you how much you’re paying in fees and other expenses, so check in on your plan to make sure you’re not paying too much.
Small variations in fees can make a big difference, thanks to compound interest. A typical worker, for instance, pays roughly 1 percent in fees, which amounts to more than $100,000 in 401k fees over the course of their career, and high-income earners can pay more than $300,000, according to an analysis released last year by the Center for American Progress.
Services like BrightScope allow you to compare your plan’s fees compared to similar plans at other companies. If it looks like you’re being forced to pay too much, talk to your HR department about bringing lower-cost funds into the mix. A Supreme Court decision in May found that employers have a continuing duty to monitor the funds that they offer investors to insure that there are low-cost options, so don’t be shy about checking in on your company’s current plans.
4. Your Contributions
Experts say you should be saving at least 10 percent to 15 percent of your income for retirement each year. That amount is far higher than the 3 percent contribution rate at which most companies set automatic enrollment. Nearly 1 in 3 Americans with a 401k have either decreased or not changed their 401k savings rate in the past two years, according to Charles Schwab.
At the very least, you should be setting aside enough money to get your full employer match. Unfortunately, 1 in 4 American workers are missing out on their full match, leaving $1,336 of “free money” on the table, according to a May report by Financial Engines.
Once you’re getting your full employer match, aim to increase your contribution amount each year. Timing the increase to coincide with a salary bump can make it less painful on your wallet. This year, employees can put up to $18,000 into tax-advantaged 401k plans, and those age 50 and older can sock away another $6,000. If you get a bonus or unexpected windfall, make a one-time contribution to get you closer to those 401k limits.
5. Your Loan Balances
Taking a loan from your 401k should be a last resort in most cases. Still, nearly 1 in 3 Americans have taken out a loan from their 401k at some point, according to Aon Hewitt.
If you’ve had to borrow from your nest egg, it’s important to keep track of how much you owe and the terms of repayment. If you miss payments on your loan, the IRS could consider your loan a distribution, in which case you’ll have to pay taxes on the money. In many cases, you have to repay the loan back, in full, if you leave your company — even if you’re laid off.
As you review your 401k plan statement, consider your long-term retirement goals. Knowing where you want to be when you retire can help you rework your retirement savings strategy.