How Should I Manage My Retirement Plan?
There are several major ways to mange the money you invest in retirement accounts. If you have an employer-sponsored account, your options may be somewhat limited but you still have the option to take a more hands-on approach to your retirement planning. If you are self-employed or do not qualify for an employer-sponsored plan, you generally have more options available when it comes to managing retirement accounts. You may decide to manage the money yourself, or hire a financial adviser to do it for you. The option you choose depends primarily on how much financial acumen you have and how comfortable you are handling investments.
Managing Employer-Sponsored Accounts
Employer-sponsored retirement accounts are managed by an administrative firm that is designated by the employer. This firm does all the investing of funds in the account and the account holder has relatively little input into how money is managed. This is because the administrator is accountable to the employer who sponsors the account, rather than the recipient of the funds. You can still expect to receive regular statements from the administrative firm and you may still have some say in how money is allocated.
Withdrawing money from these accounts often comes with stiff penalties and the holder of the account is generally not able to withdraw funds from their employer’s contributions. This can make it difficult to get funds from a retirement account in an emergency.
Workers with employer-sponsored accounts can generally pay any amount into the fund, but it is recommended that they at least match their employers’ contributions. Workers who want to save more for retirement also have the option of opening a supplementary account that they can manage more closely. More information about supplementary accounts follows.
Managing Self-Employment Accounts
Self-employment retirement accounts allow the account holder a good deal more freedom in managing their retirement planning. However, account holders who aren’t comfortable with investing can also hire a financial planner to manage their retirement. Whatever the case, self-employed individuals should choose a reliable bank or brokerage with a good reputation to maintain their accounts. If you choose to use a financial manager, you should also make sure that he or she has a good reputation and experience with retirement planning. It’s a good idea to develop a working relationship with your financial planner even if you want to leave the bulk of investing to them.
If you are comfortable choosing investments and familiar with asset allocation and related concepts, you will probably be able to manage your own retirement account. This takes time and a fair bit of due diligence, but it does save the money you would otherwise have to pay a financial adviser. Due to the effort and uncertainty involved, most self-employed individuals choose to have a financial adviser manage their retirement account. Advisers are able to choose the best and safest investments, and automatically choose more conservative investments as you near retirement age. The downside of using an adviser is that you will have to pay them an annual fee.
Managing Supplementary Accounts
Supplementary accounts are retirement accounts that you maintain in addition to your employer-sponsored account. These are similar to self-employed accounts and offer the same choices when it comes to management. If you already have an employer sponsored account but you want to save more or prefer to take a more hands-on approach to retirement planning, a supplementary account may be a good choice for you. Supplementary accounts also provide more freedom to withdraw funds early in the event of a financial emergency.
You have a lot of choices when deciding how to manage your retirement plan. However, there are several factors to consider before you make your final decision.