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4 costly reasons you shouldn’t ‘set and forget’ your 401(k)

By WTOP Staff

By Barry Glassman, CFP
WTOP Financial Contributor

WASHINGTON — When you first start a job and become eligible to contribute to a 401(k) or employer- sponsored retirement savings plan, you fill out a few forms, decide how much you want to have deducted from each paycheck and pick some investment options. Then, each month, like clockwork, money is taken from your paycheck and put into your retirement account automatically. It’s easy to just “set it and forget it” but this mindset can lead to costly mistakes.

Here are the most important things you can do to avoid them.

1. Reconsider automatic enrollment in a target date or age-based fund

If you don’t choose specific investments offered by your plan for your retirement dollars, then your plan will automatically enroll you in a target date or age-based fund. These funds consider your current age and a theoretical retirement age of 65, and automatically adjust their investment allocation becoming more conservative the closer you get to your retirement age.

But the risk in these funds can vary greatly and may not be appropriate for you depending on your risk tolerance and goals. For instance, if someone wants to retire in 20 years, one target date fund may have a 50 percent stock allocation and another may have 70 percent of their investments in stocks. If you are invested in a target date fund, it’s a good idea to look at the overall investment allocation to make sure you are comfortable with it.

2. Re-evaluate your investment choices

If you did select investments when you enrolled in your 401(k), but haven’t looked at them in a while, that allocation may no longer be appropriate. You may have taken on more risk than you intended, especially if you haven’t rebalanced your account. (See #3.) There may be additional investment options with lower fees or an allocation that is a better fit for your goals. Many employers and retirement plans offer access to model portfolios and financial advice to help you stay on top of your retirement account.

3. Set up automatic rebalancing

One of the best, easiest and most underutilized features to put in place is automatic rebalancing. In fact, according to Aon Hewitt, just 9 percent of 401(k) participants have set up this auto-rebalancing feature where it is available.

As an example, let’s say that a participant chose an allocation of 50 percent stocks and 50 percent bonds in their 401(k). Given the heated stock market, over time the percentage of their account allocated to stocks might grow to 70 percent or more, exposing them to additional risk. By switching on the rebalancing feature in their 401(k), the account would automatically sell stocks and buy bonds to return to its intended allocation. Think of it as a sell high/buy low feature. Automatic rebalancing helps to keep risk in check and can potentially enhance returns.

4. Review your beneficiaries

Probably the most common mistake is filling out those beneficiary forms, and then forgetting about them. This one-page document, not your will, decides who gets your retirement account. Should something happen to you, your family members may be shocked to find out that your ex-wife gets the 401(k) money.

Since retirement plan beneficiaries are determined by who is named on your beneficiary designation form, if you got married, had some kids, or got divorced, chances are it’s out of date. Most plans give you online access to these forms so making changes is easy to do.

Automation makes it easy to manage your 401(k) investments, but it can’t think for you. Remember that this is the money you will depend on in retirement, so take the time to make sure you’ll get the most out of it.

Editor’s Note: Barry Glassman, CFP

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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