Displaying items by tag: 401k

Morningstar’s latest Retirement Plan Landscape report finds that while the average cost of workplace retirement plans continues to decline, expenses still vary significantly—especially for those in smaller plans, who often pay nearly three times as much as participants in large plans. 

These cost discrepancies stem largely from economies of scale, with larger employers able to spread administrative expenses more efficiently. Despite the variation in fees, most participants across plans have access to high-quality investments, with over 94% of defined-contribution assets allocated to Morningstar Medalist-rated options. 

The report highlights that even small plans can be cost-effective, with 20% of them coming in below the median cost for medium-sized plans. However, more than $600 billion has exited workplace retirement plans annually since 2020, often due to rollovers into IRAs when employees change jobs. 

Finsum: Investors should carefully weigh whether their workplace plan offers better value through low fees and strong investment options before making such moves.

Defined contribution plans in 2025 will increasingly focus on generating sustainable retirement income as Social Security’s future remains uncertain and traditional pensions decline. 

In-plan retirement income products, such as annuities, hybrid target-date funds, and systematic withdrawal strategies, will see greater adoption, driven by regulatory clarity from the SECURE Act and SECURE 2.0. AI-powered digital tools will enhance retirement planning by offering personalized projections, dynamic withdrawal strategies, and automated guidance on Social Security and tax-efficient drawdowns. 

Employers will expand financial wellness initiatives, providing targeted pre-retirement education on income strategies, healthcare costs, and managing distributions. Recordkeepers and investment firms will integrate advanced retirement income solutions, making it easier for participants to transition from saving to spending. 

Finsum: Regulatory support is expected to continue, reinforcing the shift toward holistic, income-focused retirement planning.

Target-date funds offer a hands-off approach to retirement investing by automatically adjusting asset allocations over time. These funds balance growth and security by shifting from stock-heavy portfolios in early years to safer investments like bonds as retirement nears. 

Named for the investor’s target retirement year, these funds simplify decision-making and are commonly found in employer-sponsored 401(k) plans. A key factor in choosing one is its “glide path,” which determines whether asset adjustments stop at retirement or continue for years beyond. 

While convenient, investors should compare expense ratios and investment strategies to ensure alignment with their risk tolerance. Three TDF funds to consider are: 

1. Vanguard Target Retirement 2045 Fund Investor Shares (VTIVX) – Expense Ratio: 0.08%
2. Fidelity Freedom Index 2045 Fund Investor Class (FIOFX) – Expense Ratio: 0.12%
3. T. Rowe Price Retirement 2045 Fund (TRRKX) – Expense Ratio: 0.62%

Finsum: Despite their “set it and forget it” appeal, periodic reviews help maintain a well-balanced portfolio.

Planning for a financially secure retirement requires careful savings and multiple income streams to sustain one’s lifestyle after leaving the workforce. While IRAs, 401(k)s, and pensions are common sources of retirement income, annuities are another option to consider, that can suit investor looking to maximize income. 

Annuities come in two main forms: immediate annuities, which provide guaranteed lifetime income starting right away, and deferred annuities, which allow funds to grow tax-deferred until withdrawals begin. Robbins argues that immediate annuities offer unique benefits due to mortality credits, helping those who live longer receive higher payouts. 

Though some financial experts debate their effectiveness, annuities can provide a stable income stream, particularly when paired with Social Security and other investments. 

FINSUM: For retirees seeking predictability in their finances, annuities may serve as a valuable tool for long-term financial security.

With upcoming tax changes in 2026, now is an opportune time to explore strategies for maximizing tax alpha in investment portfolios, and here are four strategies recommended by JPMorgan: 

1. One key approach is asset location optimization, ensuring tax-inefficient investments are placed in tax-advantaged accounts like IRAs or 401(k)s, while assets benefiting from long-term capital gains are held in taxable accounts. 
2. Tax-aware trading—including active tax-loss harvesting and tax-efficient portfolio transitions—can further enhance after-tax returns. 
3. Charitable giving strategies, such as donating appreciated securities to donor-advised funds or making qualified charitable distributions from IRAs, offer additional tax benefits. 
4. Wealth transfer techniques, like grantor retained annuity trusts (GRATs), can help pass on assets with minimal tax implications. 

Finsum: Using a line of credit can provide liquidity without forcing premature, tax-inefficient asset sales.