Welcome to your digital 401(k) enrollment session.
You’ve decided to participate in your company’s 401(k) – congratulations! That’s the first step to building a retirement you can look forward to. Whether you’ve funded your own account, participated in a former employers’ retirement plan, or if this is all new to you – we got you covered!
This course is a mix of brief videos and to-the-point articles and should take you about from 20-45 minutes to complete. The enrollment session is separated into 3 major topics followed by a tutorial video on how to fill out your enrollment booklet. We encourage you to review all the content, but you can skip to the enrollment video if you’re already familiar with the other content.
Retirement Basics - for those who want to learn about or refresh their knowledge of how a retirement plan works. Includes:
- types of plans and their advantages/disadvantages
- tips on how to maximize your retirement
- why investing now is more important than you think.
Investing Concepts and Terminology – an overview of key terms and concepts that you willneed to be comfortable with when deciding how to invest your 401(k) contributions.
Building your investment profile – factors to consider when deciding how to invest, the two methods of investing, and determining your risk tolerance.
Enrollment Video – a step-by-step guide that you can follow along with as you fill out your enrollment booklet.
We strongly encourage you to revisit some of these investment basics that will help you better understand your retirement plan and investing concepts. Let’s jump right in.
1. What is a retirement plan?
Taxes – pay them now or later?
You will need to decide what type of 401(k) contributions you make. You have 2 options, choose wisely.
If you’re not sure which is right for you, most 401(k) plans allow you to make contributions to both. When in doubt, split it out!
2. Getting started
Here is a compounding interest example. Let’s look at two fictional investors – Sue and Bob – who earn an average 8% rate of return on their investments:
- Sue started saving and investing for retirement at age 30 and saved $2,000 a year for just 10 years. At the 8% rate of return, she ended up with $198,422 at age 65.
- Bob waited until he was 40 to start, but saved $2,000 a year for 25 years. Because he got a later start, he didn’t have as many years for his money to compound. He ended up with only $157,909 at age 65. That’s over $40,000 less than Sue.
The difference? Because Sue’s money had more time to compound, she ended up with a lot more at retirement, even though she put in $30,000 less than Bob.
The bottom line is that time is money, so make the most of it. Source: Nationwide
Risk is inherent in the markets – would you still roll the die?
3. Bringing it all together – building up your retirement nest egg
Three steps to retirement on your own terms.
- Invest now – you can’t afford not to.
- Choose the right plan for YOU!
- At least max out the company match
- Step it up.
- Stay consistent – Don’t let short-term news jeopardize your long-term wealth.
Investing Concepts & Terminology
One of the barriers that people face when it comes to investing is the myriad of terms, concepts, and never-ending options to choose from - It can be overwhelming. We’re here to make things simple.
1. Know your terms
There’s no way around this one. Knowing the difference between investing in bonds vs. stocks is crucial for the next step. You don’t need to be an expert, but you should familiarize yourself with the characteristics of the main asset classes.
For more information about the basic asset classes: Nationwide.com
2. Mutual Funds and Index Funds
You don’t typically invest in individual stocks within 401(k) plans. It’s costly to have a diversified portfolio of individual stocks. That’s where mutual funds come in, allowing investors to pull together their capital to purchase a bit of everything.
Mutual Funds are managed - their goal is to do as good as or better than their benchmark. They try to pick winners and avoid losers. Consequently, they cost more to hold over the long-run. In other words, they have higher expense ratios.
Index funds are similar – your investment gets you a piece of the pie just like with mutual funds. The main difference is that you buy every holding that is within that particular index – no manager is trying to pick winners – you get it all. As a result, they’re cheaper.
For more information about Mutual Funds and their subcategories see: Nationwide.com
3. Target Date Funds
The swiss-army knife of investing; Target Date Funds are a great choice for those who want to prefer to be ‘hands-off’ with their investments. The idea is to pick a target date fund closest to your retirement date.
Example: If you’re 40 and you plan to retire at 65, you would select the Target Date 2045 Fund.
Each year the investment portfolio gets more conservative automatically as you approach retirement.
4. Risk and Diversification
Investing involves risk; knowing how much risk you can stomach is what will keep you invested throughout the bad times and help avoid making costly mistakes. In the enrollment packet there is a questionnaire on risk – you are strongly encouraged to see what you score on it.;
The idea of diversification is simple, the more asset classes and categories that you own, the less likely you are to be significantly impacted by company-specific events.
Building your investment profile
Now it’s time to decide how you’ll invest. x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x x
1. Important Factors
Before you decide how to invest your money consider the following:
- What is your goal?
- What is your time frame? How long will you keep the money invested?
- How do you feel about risk?
2. Knowing your Options
You can invest two ways:
Option A: Target Date Fund
Option B: ‘Do-it-yourself’ allocation
3. Creating your investor profile (Option B)
Don’t be discouraged by Option B, we know investing, especially for the first time can be overwhelming. Your team at KWB reviewed your investment options and narrowed it down to a few solid choices so you can decide with confidence.
Below is an example of five investment profiles by risk level.
Make sure you consider the three important factors.
If you need additional resources for creating your investment profile here is more information on Asset Allocation
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.