As we have discussed on many occasions, Americans do a poor job of saving for retirement. Still, time and again, 401(k) plan participants ask us what they should be focusing on: asset performance, plan costs or savings rate. Hands down, it is always your savings rate that will affect your retirement—no doubt about it.
If you save $1 and get a 100% return of $2, you have achieved an awesome rate of return. However, $2 will not change your life. You must put significant money aside before you need to be concerned about performance and fees. Studies show that the average American saves 3.5% of their salary, which is most often not near enough for retirement. Dalbar, Inc., the nation’s leading financial services market research firm, shows that the average investor’s return for the last 20 years (1991—2011) has been 2.1%. The average return of the S&P index over that same time was 7.8%. Barclay’s Aggregate Bond Index was 6.5%. This also shows that the average investor also makes poor decisions on when to enter and exit the market.
We highly recommend that investors pay themselves first. One of the best features of investing in a 401(k) plan is that the money is taken from your pay before it ever reaches your checking account and you consider it “spendable.” Likewise, some employers match your contributions up to a certain percentage. This is free money—a 100% guaranteed return before you even consider stock market performance. One feature we prefer is when companies employ an auto-enrollment, whereby an employee has to opt out of making contributions to the 401(k) plan. This is better long term for an investors’ savings rate.
At Henssler Financial we believe you should Live Ready, which include contributing as early as possible to your retirement savings. If you have questions regarding your 401(k) plan participation, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
