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How risky is your 401k plan?

Updated: May 29, 2019

Your 401k plan is riskier than you think. It's purpose is to be the nest egg that gets you to retirement but it's full of risks you might not be aware of. What a 401k won't do is perform well on it's own. It will just keep plugging along until someone does something to get it working. This can last years and decades and the fact is you just don't have that kind of time


You can get help by attending our next 401k seminar, but if you'd like to understand just what types of risk you have in your plan, this post is for you.


To get started, there is a world of difference between a 401k plan that performs well and one that doesn't. Over a 20 year time period, a small difference can mean hundreds of thousands of dollars lost. This is a big problem because a 401k is the main way most people save for retirement. If a plan isn't working that well, that means it's NOT working that well for your retirement and that creates a whole bunch of issues for your future.

Your 401k is not your parents' retirement plan.

What we have to remember is that our parents retired much differently than we are going to. Your 401 is not your parents' retirement plan. Your plan is much riskier in many ways because you have to get so many things right and get them right consistently. It's not enough to just get signed up and think your company retirement plan will take care of you. You have to manage it and manage it well for it to work.


Your retirement plan at risk

Here's a short list of ways your 401k plan is putting your retirement at risk.

  1. The first risk is investment choice. If you don't work in the field of finance and you don't read up on current investments (this is most people), how do you pick your investments? The choice many people go with in this scenario is what's most likely to be the safest - a money market fund. The risk here is that you're just not taking enough risk and the money you're working hard for won't grow. An account worth $25,000 at the beginning of 2017 is worth about $25,000 today (less because of inflation). That same amount invested in a balanced fund (50/50 stocks, bonds) during the first 10 months of 2017 would be worth about $27,700 - a return of around 10%. This is money you can never get back.

  2. The second risk is the complete opposite of #1 - taking too much risk. Why not go for broke and risk it all on the most aggressive investment in the lineup? In 2008, this strategy would have cut the net worth of your 401k balance down over half and if you had sold at the bottom, well get ready to work another 30 years or so.

  3. If you have #1 and #2 down, here's what you're not doing but should start immediately. Auto-contribute and auto-escalate. These features in a 401k plan take the decision-making out of the equation and help you without you having to think about it. Most plans offer these features but you may have to ask for them. The auto-contribute feature automatically takes a percentage of your pay out each month and it goes right into the plan. The second feature ups that percentage over time. For example, if you contributed 5% of your paycheck this year, you'll want to at least contribute 6% next year. That pesky thing called inflation will eat up that initial 5% over time and after many years, it makes a huge difference.

Your Retirement Plan Improved

A potential solution to all these problems is to find a 401k advisor who can help with choosing the right investment mix for your situation and helping to make sure you're contributing enough for retirement. We're just that at Brockman Capital Management - a 401k specialist that provides education and advice to 401k plan sponsors and participants.


If you would like help making your 401k work for you, give us a call or send us a message. We have the tools and expertise to get your plan back on track. Be sure to check out our next seminar as well - it's totally free and you'll most likely come away with a better plan than you have now.