You never know what you might find when you start exploring spaces you generally ignore. For instance, you might find a rare baseball card in the attic or discover your long-lost high school ring lodged behind a dresser. And who knows how many treasures you might unearth in the garage.
If your employer’s retirement plan falls into the “unexplored” category, it’s time for a change. Your retirement account can play a key role in turning your dreams for the future into reality. If you aren’t familiar with your plan and your account, you could be missing out on a valuable opportunity to build a potentially secure retirement.
Dig for Details
Maybe you’ve been putting this off, but if you haven’t taken a good look at one of your retirement plan’s statements for a while, now’s the time. The first thing most people look at is their updated account balance. The statement also generally shows how much was contributed to your account during the preceding period and the vested portion of your account balance.
Although mistakes are rare, they can happen, so get in the habit of checking your retirement plan statements carefully to make sure the details are right. Give your account a thorough review at least once a year. Make sure the following are correct:
- Personal information (i.e., name, address, phone, etc.)
- Hire date (since it can affect vesting)
- Contribution amounts (yours and your employer’s, if applicable)
- Investment instructions
- Beneficiary designation (in general, your spouse must be named beneficiary of your retirement plan unless he or she waives that right in writing)
Probe Investment Performance
Your retirement plan account statement also provides investment performance information, which could help you make decisions about the funds or portfolios in your plan account. By themselves, performance numbers don’t tell you much. For instance, you may think a fund’s return is poor, but you can’t really tell how well the fund performed until you compare its performance to the returns of similar investments during the same period. Here are some pointers for gauging performance:
- Use a market index of comparable securities as a benchmark for each investment (e.g., the S&P 500 index as a benchmark for large-cap stock funds or portfolios)1
- Compare returns over various similar investment periods (e.g., three months, one year, three years, etc.)
Benchmarking helps put performance in perspective. For example, when a fund or portfolio has a negative return, it’s troubling. However, it’s less troubling when the fund’s comparable index dropped by a similar percentage. And, if the overall market dropped 10%, a fund that lost 5% of its value may be a relatively strong performer. On the other hand, even a positive fund performance could also be disappointing. Returns of 5% during a period when an appropriate benchmark rose 15% are unsettling and can be a reason to investigate further.
Investigate Other Options
It’s a good idea to be familiar with all your investment options, even if you’re not thinking of making a change to your plan account. For example, if your plan offers a fund you’re interested in, be sure to look over the information your plan provides before investing in the fund. Find out about the fund’s:
- Investment objectives (for example, growth, income, or a combination of these)
- Investment holdings, and how they may help the fund meet its objectives
- Potential investment risks
- Financial highlights, including performance figures (keeping in mind that past performance does not guarantee future results)
Don’t Forget the Documents
When you joined your retirement plan, you received a summary plan description (SPD) that spells out how your plan works. If you’ve never read through it, take the time to do that now. SPDs must be written in plain language so participants can understand them. Be sure to keep your SPD on file in case you have questions. Here are some of the things you can find in your plan’s SPD:
- Description of the plan’s benefits
- Plan participation and benefit eligibility requirements
- The amount you can contribute to the plan
- How contributions will be invested
- The plan’s vesting provisions
- How and when you can access your retirement money (including information on hardship withdrawals and loans)
On occasion, your employer may make changes to the plan. If and when that happens, you’ll receive a description of the changes, so be sure to promptly open and read any mail you get from your retirement plan. Then file it away with your SPD and your account statements.
Now that you’ve blown the dust bunnies off your retirement plan and shined a light in the nooks and crannies of your account, don’t lose your momentum. Open those statements when they come, review your investments’ performance on a regular basis, and get the answers to any questions you may have about how your plan operates.
After all, it’s your money and your future—it’s up to you to stay informed. For assistance with your retirement plan, call TeleBanco Popular® at 787-724-5950 (mark 6 and then 2) and one of our representatives will assist you with the navigation and use of www.popular.com/401k.
1 Standard & Poor’s Composite Index of 500 Stocks is an unmanaged index that is generally considered representative of the U.S. stock market. It is not possible to invest directly in an index. Actual results would vary from benchmarks and would likely have been lower. Past performance is not a guarantee of future results.
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The information and general descriptions contained in this article are designed to help you understand the factors that you should generally consider when evaluating the appropriateness of any strategy or investment to your retirement plan. Any descriptions herein are solely for informational and educational purposes and for your independent consideration; they are not intended to be regarded or construed as advice or a suggestion for you to take (or refrain from taking) a particular course of action. In providing this information, we assume that you are capable of evaluating the information and general descriptions contained herein and exercising your independent judgment. This document was prepared for informational purposes only and should not be considered as advice of any kind. Banco Popular de Puerto Rico, its subsidiaries and/or affiliates are not engaged in rendering legal, accounting, or tax advice. Should legal, accounting, or tax advice be required, the services of a competent professional should be sought. Investment products are not insured by the FDIC, are not deposits or obligations of and are not guaranteed by Banco Popular de Puerto Rico or its subsidiaries or affiliates and may lose value.