“Sure, we hear people say that they will spend less money, but spending less should follow with how to better plan for your retirement,” said Rich Rausser, senior vice president of client services at Pentegra Retirement Services. “Resolving to pay more attention to your future is one of the best things you can do for yourself this year.”
Rausser spoke with PLANADVISER about important resolutions employees can make this year to save for retirement. Plan sponsors and advisers can help employees be aware of these resolutions by hosting educational meetings. Although Rausser said it is best to hold the meetings before January to prepare for the New Year’s resolutions, any time is better than not at all.
Sign up for the company’s retirement plan. “If you are not deferring a portion of your salary to your employer’s 401(k) plan, you certainly should be,” Rausser said. “Any matching contribution is essentially free money—something your employer is happy to give you. And, it is incumbent upon you and your retirement to take it.”
Take advantage of the company match. Employees should also make sure they are taking full advantage of the company’s matching funds. If the company provides a 3% match, Rausser still recommends employees defer 6%.
Increase savings rate. Most participants receive salary increases at the end of the calendar year, so Rausser said January is the perfect time for plan sponsors to discuss retirement savings increases with participants.
Rebalance portfolio. Plan sponsors should encourage participants to rebalance their portfolios at least once a year. Participants should feel comfortable about how they have allocated their money, and sponsors should make tools available to help them, Rausser said.
If the company offers it, participants should also sign up for automatic escalation and automatic rebalancing. “Auto escalation makes it easy to continue a commitment to increasing your savings rate over time,” he added. When using auto escalation, however, participants should be made aware of whether the increase caps out. Once the cap is reached, participants should be encouraged to continue increasing their savings each year.
“Some investors may feel that if stocks did so well last year, they can do just as well—if not better—this year if they let their winners run,” Rausser stated. “But I would caution those investors that chasing after one category at the expense of the others will ultimately end in tears... A truly smart investor takes on an appropriate amount of risk, and takes a reasonable, diversified, cover-all-bases approach when it comes to managing your retirement plan portfolio investment strategy.”