More 401(k) plans add retirement planning advice

Don’t know where to turn for retirement planning advice? The good news is more employers are offering retirement planning advice through their 401(k) and other retirement plans. But is this something you'll want to take advantage of? Like many other retirement planning tasks, the answer is -- it depends. Let’s take a look.

According to a survey from HR consulting firm Mercer, 79 percent of retirement plan participants report that their employer offers advice in their plan, up from 72 percent in 2011. About one-fifth of these participants actually seek this advice, and it’s interesting to see that these participants report higher confidence in their retirement than workers who pass up the advice.

Whether such advice can help you depends on your circumstances, including where you are in your work-life cycle. Whether the advice is worth the cost also depends on how much you might pay for such advice from another source.

If you’re a decade or two away from retirement, then your most important decisions include deciding how much to contribute to your retirement plan so you might accumulate enough money to retire comfortably, and how to invest the money that you've contributed or earned in your employer’s retirement plan.

Most in-plan advisory services offer this type of guidance through a handful of mechanisms, such as online modeling, written reports, and/or telephone consultations. In some cases, plan participants authorize the provider to implement the investment instructions and periodically rebalance their portfolios. These services are often successful at helping employees increase contributions and align their asset allocation with appropriate strategies.

In most cases, there’s an annual charge that typically ranges from 0.2 percent to 0.6 percent of the value of your retirement savings. This is less than what you'd pay most fee-based retail financial advisors, who typically charge around one percent of your total assets in savings. Some plans, however, offer retirement planning advice for no additional charge. To find out what the advice will cost you, ask your plan administrator about the charges that would apply to you.

If you don’t have a clue how much you should save and how to invest your assets, then it might be worth spending some money for advice in these areas. It might be smart, however, to first consider some alternatives that don’t cost anything. For example, most of the time, an advisory service will tell you to save more money.  On your own, you could just decide to bump your contributions up to 10 percent of pay or more, not counting your employer contribution. Or you could simply increase your contributions to save the most you possibly can.

Regarding the investment of your savings, if your plan has target date or balanced funds and most of your savings are in your employer’s retirement plan, there’s a good chance that such a fund will work well for you. The resulting investments might not be much different from the advice a planner might give you.

On the other hand, if your situation is more complex, it could be a good idea to pay for professional advice. For example, if you have substantial savings outside the retirement plan that the planner will need to take into account, such as IRAs, then your investment solution decisions might be more complex than simply choosing the appropriate target date fund. And if you’re really concerned about hitting specific retirement savings targets, then a professional advisor can help you calibrate your contributions better than if you simply increased your contributions as suggested above.

When you're within 10 years of retirement, your decisions become more complex, and it might be a good idea to pay for professional advice to be sure you're really on track. Many, but not all, planners will help you decide how much total savings you'll need in order to retire, how to deploy your savings to generate retirement income, and when to begin collecting Social Security. You’ll be best served if you're familiar with the tasks for which you need help, and then ask the potential advisor if they're qualified to help you with those tasks.

Even here you need to be careful, however, because some advisors may be biased by the method for which they're paid. For example, if they charge a percent of assets for their advice, they might not be too happy to recommend an annuity, which would reduce the assets that they can apply their charges to. Ask if the in-plan advisor will act as a fiduciary on your behalf, which means they must place your interests above their own.

It’s also important to understand the limitations and protections offered by advisors, even those who act as fiduciaries. For example, if you tell them you're willing to accept investment risk and the market crashes, then you’ll be stuck with your losses. And most advisors will only accept fiduciary responsibility for suggesting appropriate investments but not for the decision regarding how much to save. If you save the amounts they recommend for retirement and later you fall short, most advisors won’t take responsibility for that decision. 

Retirement plan administrators, such as Fidelity and TIAA-CREF, offer in-plan retirement planning advice. Many other retirement plans offer retirement planning services from independent advisory firms, such as Financial Engines, Morningstar, Guided Choice, and Dimensional Fund Advisors.

The bottom line: Do your homework! Be clear about the retirement planning decisions for which you need help and see if the advice service in your plan offers this help. Learn how much they charge, and compare their services, qualifications, and fees to advisors you might find outside your retirement plan. Given the stakes – your security in retirement – your time will be well spent.

  • Steve Vernon On Twitter»

    View all articles by Steve Vernon on CBS MoneyWatch»
    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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