Will a 401(k) Ghost Visit You This Year?
One of my favorite things about Christmas is the familiar lineup of movies that always appear this month. The usual suspects include: Miracle on 34th Street, A Christmas Story, Christmas Vacation, and It’s a Wonderful Life. I’ve seen all of them at one point or another, but one of my favorites is A Christmas Carol because it exemplifies the spirit of the holidays.
Maybe it’s the story surrounding issues of social injustice that makes the storyline so endearing. Or perhaps it’s the theme that many things, such as love and friendship are more important than money that appeals to me during the holiday season. Even though I am passionate about helping people with retirement, it’s nice to get a break from thinking about money every now and then. (Ironicly, that’s just what we will discuss shortly – this is a financial blog after all).
For those not familiar with the story, the main character is Ebenezer Scrooge, who holds money dearer than anything. His deceased partner appears one night to warn him about his fate if he continues to live his life in greed. To give him an opportunity to change, he arranges three spirits to visit him each night – one that shows him his past, one his present and the third shows him his future. Likewise, I’m going to conjure up three ghosts of my own in an attempt to save anyone out there who may need it.
The Ghost of 401(k) Past
The first spirit that appears to Scrooge is The Ghost of Christmas Past. This spirit shows him the errors of his ways and also gives insight on how he became the person he is today. So let’s review some common mistakes that cause many people to dislike their current retirement situation. The Ghost of 401(k) Past shows you those who:
- Didn’t start soon enough – It’s very easy to put off saving until one is in a better financial position. Often times, they never reach this point until much later in their working career. Each year wasted makes it that much harder to meet those retirement goals.
- Never established an investment strategy – Years of “following the herd” have led them to continually invest more money at the top of the market and take money out at the bottom. This failed attempt to time the market has substantially hurt their long-term performance.
- Were confused about their options – so they just went with a fund or mix of funds and decided that was enough. And that lack of diversification hurt their long-term performance.
The Ghost of 401(k) Present
The second spirit that appears to Scrooge is the Ghost of Christmas Present. This spirit takes him around the city to show those both enjoying the holidays and those who are suffering. In our world of 401(k)’s there is also a mixture of those who are well on their way to retirement, and those who lack a plan or are very concerned about the future.
Many of the problems people face today with their retirement outlook includes a combination of the mistakes mentioned above. This downturn has certainly added to the dispair that many people are facing; however, sound investing and a disciplined approach will give people a high probability of success over the long-term. (If this ghost speaks to you and you are looking for a quick to-do list to get caught up, check out our Smart Savings series in the Insights section of our website.)
The Ghost of 401(k) Future
The final spirit in A Christmas Carol is The Ghost of Christmas Yet to Come, which shows Scrooge his current future. And, needless to say, it is not pleasant. Scrooge realizes he still has time to redeem himself; you too have time to make the necessary changes to boost your retirement savings.
The good news is, the future is whatever you make it (I know this because of the scientific evidence from the Back to the Future movies – also among my favorites). The Ghost of 401(k) Future shows you some things you can do now to make your future retirement chances better:
- Save more – Even though this may seem impossible given the current economic environment, make every effort you can, even if the step is small. At times I also feel like I have no extra room in my budget for savings, but regardless I am increasing my contribution next year by 1%. I won’t miss this money and it just might make a significant difference later.
- Build an investment strategy that makes sense for you and your situation. Be mindful of how long you have before retirement and use the best mix of funds that are available in your plan.
- Play an active role in your retirement – Just like you shouldn’t make changes on a daily basis to your retirement account, you cannot just set it once and forget about it. We recommend making changes four times a year to ensure that you maintain your investment objectives and goals.
- Get professional help – If you’re just not sure what to do or where to get started, or just want some confirmation of what you are already doing, consider getting some help. Even if it’s not with us, just be sure that you get the help you need. (Feel free to contact myself or one of our advisors at 877-627-8401 or by email at info@smart401k.com if you would like to talk through your situation and options).
As Scrooge learned, even if you’ve made some mistakes in the past, it is not too late to get on track for retirement. Learn from your past, address your present situation and give yourself the get possible future.
Kevin Jaegers, Senior Investment Advisor
