Americans are doing well with their 401(k) plans - but they could be doing better.
According to Fidelity Investments' August 2005 annual study of 401(k) plans, last year average 401(k) plan balances hit their highest level in five years, rising about 10% from 2003 to $61,000 on average. In 2003, the average 401(k) balance was $55,000. Average plan participation rates remained steady, with 66% of eligible workers contributing in 2004 and 2003.
But Fidelity's analysis also showed that American workers could be doing more to help achieve their retirement goals.
For example, about one-third of eligible workers have yet to enroll in their workplace plan, and of those who do participate, a significant number aren't saving at rates considered adequate to achieve retirement readiness.
Scott Revare, CEO of Smart401k.com, has some ideas on how Americans can get more out of their 401(k) plans.
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One way for employees to improve 401(k) performance is to gain a better understanding of the hidden gems within their retirement plan.
"Taking advantage of simple and often unknown options can dramatically improve performance," says Revare.
Here are some performance boosters:
1. Look for a self-directed brokerage account option.
For a small fee, some plans offer the option to open a brokerage account for your 401(k), allowing participants to invest in almost any stock or mutual fund. For those that have the expertise or access to an adviser to help select funds, it's an option that can provide an opportunity to maximize returns.
2. Utilize your plan's "auto-rebalance" option.
One of the biggest mistakes investors make is forgetting to periodically rebalance their investments to the allocation percentages they originally chose. Many plans now offer an online option to automatically rebalance individual 401(k) plans on a quarterly basis.
3. Take advantage of new fund options.
Employers are required by law to offer solid performing funds, which means funds that perform poorly are eventually replaced by newer better-performing ones. The new offerings introduced to plans are usually added for a reason - because they are solid investments.
4. Take advantage of educational and advisory resources provided.
All plans are required to provide access to educational material to help a plan participant improve their investing acumen. Some plans offer resources that advise participants on exactly how to invest in their particular 401(k) plan.
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