Dear Helaine: I need some advice on where to save for my retirement. I am 47 years old, and my wife and I own our home and have no debt. Over the years, my various employers have been on a downward trend as far as matching contributions to a 401(k).
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I am currently saving 10 percent of my income into the company-sponsored 401(k), with a 4 percent company match. We have received news that due to a pending merger, our new corporate overlords will no longer offer us any match at all. I was going to increase my own contributions by another 5 percent, but I am reluctant to rely on this company-sponsored 401(k) as an investment vehicle. Any advice on options I should explore outside of this 401(k)? -- Retirement Blues
Dear Blues: This is a question that sounds easy but is anything but. I'm going to ask you to weigh a couple of different factors. Then you need to make the decision, not me.
First, it is absolutely true that companies are not required to offer their employees a 401(k) at all, never mind a match on their contributions. No surprise, many will change reimbursement amounts. During the last recession, it was common to see major employers cut back or eliminate the match entirely. Many have since restored it, at least in part. Things change, in other words. Will you stay on top of this, or are you the sort to ignore the company plan once you are no longer part of it?
Second, the law permits you to put aside much more money in a 401(k) than an Individual Retirement Account. For 2018, a person under the age of 50 can set aside $18,500 in a 401(k) vs. $5,500 in an IRA. In the ideal world, of course, most of us would max both out, but few can afford to do that.
Finally, there are fees. Mutual funds are not free. Investment advice is not free, either. Ditto administering a corporate retirement plan. Those fees, of course, eat into your profits over time. As a general rule, large companies have the heft and expertise to make it more likely their employees are offered low-cost investment options in their 401(k)s. Small businesses -- not so much. Individuals? It depends how savvy you are.
There are extremely low-cost index fund offerings -- heck, sometimes even no-cost selections -- at brokerages like Fidelity and Vanguard. Are you the sort who will compare options between your 401(k) and a low-cost brokerage, and then follow through based on what you discover? Or will you fall prey to the financial adviser recommended by a friend or cousin, who might not have a legal duty to act in your best interests?
Again, only you can answer these questions. Good luck!
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