Can You Manage Your Cooperative 401k Plan Correctly?

Did you know that the S&P 500 Index Mutual Fund available to you through your NRECA 401k options has historically averaged a return of approximately 10 percent? Did you know over that same period of time the average cooperative employee in the 401k plan has averaged a return of only 3.9 percent? Why are you getting 4% instead of 10%?

Do you know how to manage your 401k?

Almost every single cooperative employee has access to the same 401k plan but most employees have zero training in how to actually manage money based on their age, goals, retirement plan, etc.

Here's an analogy I like to use with regard to 401k plans: Would you take a free car from your employer with the only stipulation being that you have to do all the maintenance and repairs on the car for the entire life of the car?

Yes, we would all take that deal but some of us can actually do car maintenance. Many of us, however, have no clue how to even change the oil! For the first several years that car will run fine but if we neglect repairs and maintenance, over time that car will start performing poorly. In many cases it will stop running all together.

I make this analogy to illustrate the point that, without training, a 401k can actually be a detriment to your retirement plan. You can totally derail your retirement by not managing your 401k correctly. Lou Holtz, former college football coach at Notre Dame once said, “You don’t need the big plays to win; you just have to eliminate the dumb ones.”

The same concept can be applied to your 401k. You don't need the big plays to win. You just need to eliminate the dumb ones.

And as for the younger crop of cooperative employees, many of you don't have access to the R&S pension plan so managing your 401k correctly is essential to your retirement plan. However, depending on how your cooperative has structured its match for your 401k, it can be a better option long term than the R&S plan ever was.

Is emotion driving your decisions?

Emotion can drive the average investor to chase the latest, hottest investments after they have peaked and then sell the investment after taking the ride all the way to the bottom. Everyone has heard the phrase “buy low, sell high,” however, very few 401k investors do this. Many commit the cardinal sin of buying high and selling low without even realizing it. Most of the time that decision-making process was based on emotions.

A classic example of this was during the Great Recession of 2008. Markets fell by 49% and many people panicked. Since they could "control" the investments in their 401k they did what they could to stop the pain in their investment accounts.

And they did precisely the wrong thing...they made decisions based on emotion. They sold low. They locked in 49% losses for the rest of their lives. We don't need to get into math here but it is extremely hard to ever come back from a 49% loss.

What's interesting is that during that same time period housing prices fell between 10% - 35% depending on where you lived, but I bet you didn't call your real estate agent and list your home for sale. Why?

One reason is that there’s a barrier between wanting to sell your home and actually doing it. It takes more than logging on to a computer to sell a house. A good financial advisor gives you that same barrier. They stand between you and any impulses you may have to derail your long term plan.

The second reason was probably because you didn't want to lose money (and possibly a home that you loved). Investments in your 401k are much like a house. You buy them with the plan to hold them for years. You don't actually lose money until you sell the investment at a loss.

We can help you manage your 401k plan

What most cooperative employees don't realize is that you are already paying advisor fees in your 401k without getting personal guidance on how to manage it. Almost every 401k plan in the country at any company is managed by registered investment advisors who act as fiduciaries to the plan. Their obligation is to the 401k plan, not to you. They cannot manage or advise you on how to specifically invest your money based on your personal goals. I repeat... they work for the plan and not for you. We work for YOU and not the plan. See the difference?

I want to be clear that this is not a bad thing. NRECA does a great job managing their 401k plan but just remember that their obligation is to the success of the plan and not to your success in retirement.

Your plan at NRECA also offers a Self Directed Brokerage Account (SBDA) option. An SBDA allows you to open an account with an advisor that gives you access to more investment options and gives you the ability to have an advisor professionally manage your account based on your goals.

You can also hire an advisor at an hourly rate to review your 401k to make sure your investments are aligned with your retirement goals. At 80/20 Financial Services, we can meet with you in person, on the phone or via a webchat to review your 401k investment plan.

We review your 401k to make sure your investments are aligned with your retirement goals. We will calculate how much money you need to retire and how much you need to invest and what investments to choose in your 401k and /or other retirement accounts to meet that goal. We will then give you a one page plan that details exactly what you should do. The plan we give you is good for that year only. If you like the plan and process, we continue to meet once per year to make sure you're on track to reach your retirement goals.

Did you know that working with an advisor on your 401k can lead to a balance twice what you would've had going it alone?

You need to read that again. Twice as much! And that result is not from picking the "right" investments, it's from keeping you from buying and selling at the wrong time.

In the end, your 401k can make or break your retirement plan.

At 80/20 Financial Services, we specialize in retirement income and investment planning. If you are age 50 or over and need help with your 401k strategy and your retirement strategy in general, contact us. We don't sell. We help.

Your 401k deserves more than thoughts and prayers

Remember when your 401k becomes a big part of your retirement strategy, there isn't room for costly mistakes. When you realize you need retirement planning beyond what you can do yourself, please feel free to reach out to us. If we can help you we will. If we can't we will let you know that immediately. The benefits of working with an advisor go far beyond just the management of your money.

Google is great for information but terrible for wisdom.

You need a plan

If you're interested in "beating the market" or finding the next "hot stock" we can't help you.

If you're interested in creating a goal-focused, long-term plan to ensure you don't run out of money in retirement we can help you.

We create and manage retirement income and investment plans for electric cooperative retirees to ensure the money you have saved lasts the duration of a 20-30 year retirement and beyond.

We work to ensure the money you need in the early years of retirement is safe and not subject to temporary market fluctuations, while at the same time putting the money you'll need in the later years of retirement in a position to receive the permanent market returns necessary to provide an income that increases and outpaces inflation.

For more articles about retirement planning and investing click here.

Brian Coleman/Electric Cooperative Retirement Specialist

80/20 Financial Services is an Independent Registered Investment Advisor (RIA) registered in the state of Missouri (CRD# 300772). We help electric cooperative employees in Missouri and throughout the United States transition into retirement. Being independent allows us to work exclusively for YOU.

Photo by Jason Briscoe on Unsplash