Who wants to miss out on stuff? No one, that's who. Hidden features, special offers and upgrades? I want them all. I even covet the extra donut in a baker's dozen. One often overlooked part of your life that is chock full of extra features is your workplace retirement plan – typically a 401(k). Here's a quick overview of some of the most common special features that can help increase the likelihood of your savings success.
The Freebie
You probably know that many companies offer a matching contribution that consists of an automatic contribution into your account from your employer. But are you taking full advantage of it? The so-called matching formula that stipulates how much the company will contribute may be complicated, but it's worth deciphering so you can be sure to take full advantage of this benefit.
To get it: Try to maximize the amount of money you receive through the match. Most formulas spell out how much you'd have to contribute to max out. Try to contribute at least that much. In a world where investment returns are always uncertain, match dollars flowing into your account are one of the best freebies around.
The Upgrade
Many plans will automatically increase your contribution rate every year for you. This is a great feature for increasing your savings without having to remember to do it on your own.
To get it: You typically have to select this feature (often called auto escalation or something similar, though a few employers do it for you). Your contributions will go up periodically to the maximum rate you select or your plan allows. You may still want to periodically check your savings progress – and up your contribution level again if you are not meeting your savings goals.
The Special Feature
Most plans have a default investment, such as a target date fund, with the goal of maximizing your returns at an age-appropriate risk level. Unless you have experience, interest and time to assemble a well-diversified portfolio, you may want to consider turning over your asset allocation and rebalancing to such a vehicle.
To get it: Read up on your plan's default investment strategy (sometimes called the Qualified Default Investment Alternative, or QDIA). If you are comfortable with the way the fund is managed, you won't have to do anything. But if you have investment requirements that might not reflect your age or situation (a large pool of assets outside of the plan), you may wish to consider a managed account or other more individually focused investment strategy instead.
And That's Not All
If you are age 50 or older, you can contribute an additional $6,000 to your account in 2015 – on top of what would otherwise be the maximum of $18,000. This is a great way to turbocharge your contributions as you get closer to the finish line.
To get it: This is one of those features that most plans require you to elect. But once you've boosted your rate, it typically will stay at the same level (unless you change it again). Note that your plan's recordkeeper will automatically shut off further contributions once you hit the annual maximum contribution. (One exception to that: Look out if you change jobs, plans and recordkeepers. In that case, you need to keep tabs on your contributions yourself to make sure you don't go over the limits.)
Double Feature: Keep It Longer
Many participants believe that once they retire, they are required to move their savings out of the plan, typically to an individual retirement account. But that's not necessarily the case. Many employers let retirees stay in the workplace plan – and continue to get what are most likely lower fees on their investments.
To get it: Do a side-by-side comparison of the features and costs of your alternatives. You may see a larger choice of investments outside your plan, but odds are your employer's plan has the most common investment alternatives covered, and at a much more competitive fee.
Scott Dingwell is a Director in BlackRock's Global Client Group where he serves on the U.S. and Canada Defined Contribution Team. He writes about retirement for The Blog.
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