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When free 401(k) advice is offered, employees should take it

By Michelle Singletary
Washington Post Staff Writer
Saturday, October 9, 2010; 6:30 PM

When I'm in a hurry and all of the supermarket checkout lines are long, I head for the self-service terminals to ring up and bag my own groceries.

But occasionally, I have trouble scanning an item, or I can't find the code for something on sale. My frustration doesn't last long, because at the store where I shop, there's always a cashier strolling by these checkout stations ready to help bewildered customers.

Clearly, the supermarket managers recognized that customers would still need help in the self-service lines.

Many employers have also realized that their workers, who have largely become responsible for self-servicing their own retirement portfolios, need guidance so they can best allocate contributions to their 401(k) or other retirement plans. And many companies now offer professional advice - for free.

The problem is, some employees don't take advantage of the guidance, according to a study by the investment company Charles Schwab.

"It's safe to say it's very difficult for people to have a well-diversified portfolio if they are doing it on their own," said Catherine Golladay, Charles Schwab vice president of 401(k) education and advice.

Schwab looked at the behavior of employees participating in retirement plans it services and conducted a survey of more than 1,000 401(k) plan participants nationwide.

Seventy percent of respondents said their 401(k) was their only or primary source of retirement savings. But less than half (47 percent) felt confident they were making the right investment choices.

Most respondents said they would use free, personalized advice if their employer made it available. But when Schwab looked at the actual participant behavior in plans it services, fewer than 10 percent of people who have access to free advice took advantage of it. Why?

A little more than a quarter of the respondents said they got their advice elsewhere. That's fair enough. But 26 percent said they were too busy dealing with day-to-day financial issues. Many people didn't think they had enough saved to warrant getting help. What surprised me was the 49 percent who said they wanted to have more than $100,000 saved before taking the time to ask for advice.

In analyzing the 401(k) plans it services, Schwab found that when employees took advantage of the free advice, it had a significant impact on how they handled their retirement plans. People realized they could save more. Seventy percent of workers who receive 401(k) advice make changes to their deferral rates, and their savings rates nearly double as a result, jumping on average from 5 to 10 percent of pay.

Listening to the advice meant greater diversification. Schwab found that the average participant who has not received professional advice is invested in fewer than four asset classes, whereas those who receive advice invest in a minimum of eight.

Employees who sought advice also didn't panic during the ups and downs of the stock market. Most plan participants who received advice saw their 401(k) portfolios rebound when the market rebounded last year.

It used to be that the company that managed your 401(k) plan couldn't give you anything more than the most generic advice about how to invest in the offerings of the plan. This is not the case anymore.

Employers can make arrangements for a financial services or investment company to provide advice, from how much workers could be saving to helping them figure out where to put their money based on their investment goals. Taking into account their own comfort with risk, workers can get advice on which funds to invest in, and how much to invest to meet their retirement needs.

"I don't think people understand the full extent of help they are going to get," Golladay said. "We talk about where they are from a bigger picture, such as how much consumer debt they have and whether they have an emergency fund."

Of course, how good and personalized the advice you get is may vary. The guidance that employees receive can range from online or telephone help to general materials with asset allocation models. There are also face-to-face sessions and workplace PowerPoint presentations.

Some help is better than nothing.

The Schwab survey found that most respondents said they would seek help with retirement planning the closer they got to retirement. For many, that's just too late to correct any mistakes.

With something as important as your retirement savings, don't procrastinate. Whatever free advice is made available by your employer, use it.

Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St. NW, Washington, D.C. 20071. Her e-mail address is singletarym@washpost.com. Comments and questions are welcome, but due to the volume of mail, personal responses may not be possible. Please also note comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

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