Perform an Annual 401(k) Checkup

For many of us, our 401(k) plan is our main retirement savings vehicle. The days of a defined benefit pension plan are a thing of the past and we are now responsible for the amount we save for retirement and how we invest that money. Since we are now responsible for our investments it’s important to thoroughly review your 401(k) contributions, allocations, and fees annually. Keep an eye on the following:


The biggest determinant in the lifestyle we lead in retirement is how much we save while we’re working. Review your 401(k) contribution rates and try to increase the amount 1% a year until you reach 20%. Another strategy for increasing your savings rate is to allocate a portion of any raises that you may receive, since your used to living on the lower salary already it won’t be missed. At the minimum, make sure you are contributing enough to receive the full matching contribution from your employer so that you are not missing out on any money that is available to you.


Review your asset allocation in your 401(k) as part of your overall financial plan. In many instances we find that there is too much overlap in the asset allocation held in different accounts. Try to think of your 401(k) in the scope of all your financial assets, then using your risk preference and your time horizon, look at all the asset you have and allocate the funds accordingly. Tax advantaged accounts such as a 401(K) are an ideal places to hold equity and bond mutual funds and REITs due to their lack of control and timing of dividends and capital gains.

Fees and Performance

Review the performance of individual investments, comparing the performance to appropriate benchmarks as well as the fees the fund charges. Try to use the lowest cost fund within the asset class to benefit from the performance of the asset class over the long-term. You want to receive your fair share of the market return for the asset class. Don’t switch in and out of funds due to recent performance and check the funds fees and track record at before make any changes.

Review your allocation at least annually to make sure it is still in line with your desired allocations. If not, rebalance your holdings to get your allocation back into the proper weights. Your 401(k) is an important retirement savings vehicle and reviewing it annually will help ensure that you are on track to live the lifestyle in retirement that you envision.

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