Our advisors are constantly in contact with employees from all income levels, educational backgrounds, and industries and we see common themes when it comes to the types of questions they are asking us. our Lead Consultants spend most of their time with plan participants helping them navigate their retirement savings. People need help with this stuff, delivered in a down-to-earth manner that can take them from point A to point B, and let them get on with their day. This can be said of people's common challenges when dealing with their retirement plan. While we hear a wide variety of questions and concerns from people on a daily basis, here are the three that we hear the most: 

1. "Am I invested correctly?"

It should come as no surprise that choosing investments is seen as one of the most daunting tasks when it comes to retirement planning. Most people don't have the time (or interest) to follow the market and just don't feel that they have the knowledge base to make confident investment choices. In today's world, the onus is on the employee to make investment decisions, as opposed to in the past when more companies offered pensions, relieving individuals from making these types of choices. It's no wonder that many people are wondering if their investments make sense for their portfolio. If your plan has an advisor, you should be able to talk one-on-one with them to determine the correct investment mix from the funds in your company's line-up, based on your appetite for risk and time horizon. 

Essentially, the most basic way to answer this question is this: The further away you are from retirement, the riskier you can be. You have more time in your investment horizon so if the market does take a dip, your portfolio should have plenty of time to recover. On the opposite end of the spectrum, if you are getting close to retirement age, you'll want your investments to be more stable and take on less risk. In an effort to combat this confusion, many companies now offer a popular investment option called Target-Date Funds, which take a lot of the guesswork out of picking funds. With that said, you're not expected to be an expert and we always recommend seeking professional advice if you're struggling with how to allocate your retirement savings. 

2. "Should I be saving more?"

The short, simple answer to this is a resounding, "Yes!" The longer, less straightforward answer is, "It depends." Every employee we speak with has a different financial situation and of course, as retirement advisors we want people to save as much as possible, but that's not always feasible for a variety of reasons. The first thing you need to figure out is how much you've saved so far when you're projected to retire, and how much you think you'll need to have saved by then. A retirement advisor can run a retirement readiness projection, but there are also plenty of online calculators you can use yourself. These calculations will let you know if you're on track to save enough, and if you're not then you should consider boosting your savings rate. As we've said before and we'll say, again and again, the first rule of thumb is to at least save enough to get the employer match if one is offered.

In an ideal world, everyone would max out their 401(k) every year (the limit for 401(k) contributions is $18,000 and $6,000 in catch-up contributions for those 50 and older in 2015), but there are many scenarios where someone can't do that, and shouldn't do that. If you have a significant amount of credit card debt, that should be your priority to pay off rather than increase your retirement savings. If you're one of the many who are scared of suffocating under a pile of student loan debt and your interest rate is hovering around 7-8% or more, make sure to allocate funds to this so it doesn't follow you into retirement. And, this is probably the most important factor to consider, do you have an emergency fund? If you don't have at least 6 months saved to cover your living expenses in the event of an emergency, then hold off on increasing your savings rate and build your emergency savings. 

3. "What are the downsides of taking a loan/distribution from my account?"

As an organization that's trying to help people save for retirement, answering this particular question can be quite challenging. We understand, life happens and the money in your 401(k) is technically yours so you're entitled to use it however you want. To answer these questions though, let's explore some of the cons of taking a loan or distribution: 

  • If you leave your current employer, your loan will need to be paid back in full within 60-90 days of your departure and if you can't pay it back then, you will owe income taxes on the full amount. 
  • If you're younger than 59 1/2, taking a distribution means you will owe an additional 10% penalty on the amount distributed. 
  • 401(k) loans typically need to be paid back in a period of time that does not exceed 60 months. So, depending on your income level and amount of the distribution, you may feel like you can't keep saving as much into your retirement account while paying back your loan, which means you'll lose out on the power of compound interest and put an even larger dent in your savings.
  • When you take a loan, that money is taken out of your account and you miss out on potential growth and earnings. 

We know more than anyone that there's a lot more to your 401(k) plan than just simply enrolling. Remember, you only retire once! We want you to make wise financial decisions and optimize your 401(k), so seek out answers to questions you have now, rather than later, to make sure you're on the right path to saving enough.