Americans want help with their 401(k)

Posted on: 09/10/2013

According to a new study from Charles Schwab, most working Americans find explanations of their company’s retirement plan are more complicated than their health care benefits. Workers continue to be most confused by what investment choices to make from the many that are offered by their Plan.

To view an infographic highlighting the study’s results, click here.

Highlights from the Schwab study include:

– 46 percent of 401(k) savers surveyed said they don’t feel they know what their best investment options are.
– The study points to significant concerns regarding how to allocate and distribute assets inside a 401(k). In fact, 34 percent feel a great deal of stress over correctly allocating their 401(k) dollars.
– Investors are also unsure of their personal risk-tolerance and receive mixed messages from outside sources.

The iSectors Approach to 401(k)s
iSectors’ ETF-based asset allocation models can be utilized in 401(k) Plans. We believe plans should facilitate participant success. In many cases, that may mean fewer investment options that helps streamline participants selection process.

When a Plan is designed properly, the participants only need to worry about three things:
1) How much to save
2) How much risk they are willing to assume
3) Selecting the appropriate allocation model

Thus, rather than select from a number of different funds, the participants can fill out a risk assessment questionnaire, which helps educate them on the allocation model that they can select that might be the most closely aligned with their investment goals and risk parameters.

As an example, the iSectors Global allocation series contains 5 models, each intended for a unique investor risk category. These models are optimized using exchange-traded funds including domestic, international and emerging market equity and fixed income index ETFs. Depending on the model selected, the portfolio may have in excess of 5000 underlying investments (stocks and bonds) within the various ETFs.

New Opportunities for 401(k) Plan Advisors
The survey also indicates that there is a lot of opportunity for advisors that serve the 401(k) market. Advisers can differentiate themselves by educating Plan sponsors on the importance of designing a plan that doesn’t confuse participants, as well as properly educating participants on how to evaluate which allocation is appropriate for them.
For more on the study, CNBC’s Mark Koba provides some great information in his article, Can’t figure out your 401(k)? You’re not alone.
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