A Retirement Plan in the House

I have to wonder what people sometimes think, Boomers in particular. Confidence is down but spending is up. The recession isn't really a recession but for many it seems like one.The media talks of millions of homeowners looking for mortgage relief, being foreclosed or worse, are feeling the crush of owning a home adversely impact their retirement plans. And yet, some people are still planning a future with their house as part of the process.

Could be a sign of the times and then again, it might be the progression of where we would be in our retirement plan. If the results of the latest Associated Press-LifeGoesStrong.com poll are any indication, we have reached a pivotal point in retirement planning. Should I stay or should I go?

A great many retired couples have told me over the years that the biggest mistake they may have made was selling the family home. They have opted for a dream instead and chased it with their new found retirement freedom. But many failed to take into consideration that a place is more than just a shelter. It can be proximity to children and grandchildren, services such as health care facilities or other seniors and often, in communities that are growing with younger cohorts. And almost equally as many have found the size of the house they own in their pre-retirement years is simply too large to accommodate - or worse, afford.

Should it be a surprise that we begin making post-work plans in midlife? Or is the surprise the decision we make? According to the recent Associated Press-LifeGoesStrong.com poll, three out of ten midlife retirement planners are suggesting that they will look elsewhere when they do retire. And according to the poll, they are resigned to sell the family home for less than what they had thought it was worth a decade ago.

But that is understandable for two reasons: those out-sized estimates of property worth have been adjusted to fit a lackluster economy and there is a greater chance that the equity they may have calculated has shrunk due to refinancing. Folks in the midwest are more likely to stay put, more so than their east coast neighbors.

The poll also suggests according to Barbara Corcoran: "more than four in 10 want a smaller home, 30% would like a different climate, 25% will look for a more affordable home, and 15% will pack up our bags for the sole purpose of moving closer to family." And when they do move these people dream of a one-level home with enough room to accommodate the occasional visitor, close to medical facilities and not in-city. And those that stay put waste almost no time converting their children's rooms into something more focused on their evolving interests.

Oddly, the question of taxes didn't come up in the poll, something of major interest to older people planning on a fixed income lifestyle. A larger home requires upkeep and maintenance that might not configure into a retired income. And the thought of a second home was not amongst the wishes this group had either. In fact, only about 12% want to feel the sea breeze in their graying hair.

The question is: how much of a role should your home play in your retirement plan? Many people have factored in the equity in their plans - or at least they used to - and the mistake made by these folks is twofold. One, you need to live somewhere and two, unless you own your home and have considered the chance that you might reverse the mortgage at some point. this equity is nothing but paper dreams.

A harsh reality but more true than not. If you are factoring in your home as part of an estate, then no doubt you have made all of the considerations, tax and otherwise, surrounding that decision. But if the home will become unmanageable (how hard is the upkeep now?), then looking for the opportunity to sell it, no matter how much you might "love" the house, the location, the neighbors, should be weighed.

As retirees approach that magical time when you either cutback or stop working altogether, the best advice woud be to begin to stage the sale of the property now while your income is less fixed. If you don't sell, you will have a slightly improved place. If it does sell, it will help you get the price, or closer to the price you might think it is worth.

Paul Petillo is a fellow Boomer

Legislating Retirement

"On Oct. 13, the Employee Benefit Research Institute released a study showing that 54.4% of full-time, full-year wage and salary workers participated in a retirement plan in 2009. In 1999, that figure was closer to 60%. And the rate of employer sponsorship of plans dropped to 61.8% in 2009, from 69.4% in 1999." And this has Congress concerned enough to take the drop in retirement planning by individuals and the plans offered by employers seriously.
There are numerous reasons. But one that comes to mind is the future health of Social Security. The fewer folks who direct their own retirement increase the dependency on this plan. Not that I don't believe it will be available for all Americans in some shape or form, no matter how old you are. It is that "shape or form" which has me worried - and apparently Congress as well.

Senate Health, Education, Labor and Pensions Committee, Chairman Tom Harkin, D-Iowa, indicated that he was zeroing in on retirement issues. he remains a fan of defined benefit plans or pensions even as defined contribution plans (or 401(k)s dominate the retirement investing/saving landscape.

According to a statement he made for an article in Investment News, he said: “I am going to make retirement security a priority”. Retirement security has shifted in the last decade and even more recently from accumulation to decumulation(which is a fancy word for knowing what you will get when you retire. Pensions did this; 401(k)s do not. Senator. Harkin, who quite possibly will remain in the chair he leads even if the GOP wins the House made clear that “Over the coming year, I plan to hold a series of hearings examining the crisis in retirement security from a number of different angles, and I look forward to working with my colleagues on comprehensive reforms to help workers save for retirement and ensure that they have a source of retirement income that they cannot outlive.”

This basically portrays the argument about retirement in a wholly new light: Companies want to continue to save money while suggesting that self-directed plans work. Even as employees are realizing that their participation in these plans carries more risk than they previously thought they did.

Paul Petillo is the Managing Editor of Target2025.com/BlueCollarDollar.com and a fellow Boomer

Playing Worry: Approaching Retirement with Dread

Baby Boomers and those that follow you age-wise through the workforce all seem to very concerned about a single thing. You can't escape it.  You are having your choices about retirement and your plan diced and splayed and discussed in any number of forums.  None of the outcomes from these conversations are suggesting what you want to hear. So here's a flash: you're worried.

Insured Retirement Institute President and CEO Cathy Weatherford recently wrote "Unfortunately, as the promise of Social Security continues to be on unsure footing, working Americans are coming to realize that they will need more than just that paycheck to sustain them throughout their retirement." Even when the Employee Benefits Research Institute released its most recent report, concerns about retirement were, as they could only be expected to be, were the top concern.
And with that comes the numbers.  Now I tend to agree with Steven Strogatz, professor of applied mathematics at Cornell and the author of "The Calculus of Friendship when he suggests that although we are easily duped by words, numbers "brook no argument," he writes suggesting that they "are the best kind of facts."  he describes them as cold, hard, and objective. So when the EBRI reports that 69% of those recently surveyed believed that retirement accounts were extremely important, most of us agreed. Three out five the EBRI concludes from their question don't believe in Social Security and almost two-thirds say they lack confidence in the program enough to begin saving more.

Now to Ms. Weatherford's defense, she sells annuities.  So when she adds that "Increasingly, they [the working folks] are looking for ways of securing their retirement income through annuities, retirement savings accounts and other insured retirement strategies. Employers can play an important role in helping to connect employees with available benefits that can lead to a financially sound future."  I am left to ask the question: wasn't it the employers who got us to this point?

Although as the report, which was commissioned by Project 2010 suggests that 94% of the employers offer a plan of some sort, the less than surprising number is the actual participation.  With three-quarters of the employees that have access us them, it is the fourth that don't is the more troublesome number. And tucked inside these numbers is the fiduciary fib that these employers have done everything they could do to get their employees involved.

Employers are directly responsible for encouraging their employees to invest for their own futures.  Some incentivize their plans with matching contributions. Matching contributions do not have to be high in order to get their workers to participate in the plan.  In fact, studies have shown that a more modest matching contribution might actually spur the employee to put additional funds into their accounts. In the latest economic downturn, companies dropped or greatly reduced their matching contributions and are slow in returning to them.

The matching contribution does a great deal in getting the employee to do right by their own future.  But more important is the period of time between initially beginning the job and the actual beginning of their participation in the plan.  Some employers hold their matching contributions for a longer (than is necessary or even in some cases, realistic) vesting period giving the employee less incentive to invest if they feel as though they don't expect to remain at the job that long.

Some employers do offer plans that are both robust but well-supported with information and educational materials. But no plan is the be-a;;-to-end-all offering that would create the perfect scenario for everyone: employers, employees or the plan administrators. And also included in the report was the fact that 17% of the plans now offered annuities. Is this just an attempt at getting to that perfect "everything" plan?

This lack of what the investment industry refers to as a holistic approach, or decumulation, has professionals practically drooling in anticipation of of what these products can hold for their industry.  I don't really worry that my opinion about annuities will alter simply because this product has begun to emerge as the next big element in your retirement plan.  An annuity will always be an annuity and because of that, will always have more unanswered questions that concrete evidence that it is a better product as a whole instead of its parts.

Annuities are hybrids, born in the insurance industry as part insurance and part investment.  They are costly and unwieldy, ripe with fees and special ta situations for your heirs, hard to get rid of if you change your mind and don't necessarily do for women the way they provide for men.  That last part about women versus men is an actuarial adjustment for the longer lives women have. No other "investment" makes such a distinction.

Then there are the idea of guarantees. Annuities make certain promises, the largest of which is that they will never go out of business. Never is a really long time. And depending on the potential you might have for living longer than you anticipated, it would be nice to think that a company could never falter, never be affected from some unforetold expectation and never consider closing its doors for good. But it happens. It doesn't happen with your equity mutual funds and some bonds might default in your bond funds, but insurers are not forever. This is risk that is grossly understated.

What makes people so fearful about Social Security is the very thing that makes it work.  Whenever you can pool risk, you eliminate more than you create.  The fixes to Social Security are rather simple and even if you are decades from retirement, the program has the legs to continue on even in the face of the Boome onslaught (a wave that may effectively be not much more than swell in this post-recession economy). Annuities can't do what Social Security does and for good reason: there is no money to made.

In the name of fiduciary responsibility, plan sponsors will be begin to offer this sort of product with questions on cost, viability and suitability all left unanswered.  Even a simple CD could do the same sort of thing an annuity would, come with FDIC insurance and promise to never lose a penny.  A well paid CD tucked inside a retirement portfolio but outside the tax-deferred plan would help ease those fears just as well.

But the biggest fear is that when they do become available in your 401(k), they won't be one annuity, but a succession of small, mini-products, each with differing contracts. So far, no retirement plan has been able to answer the question of liquidity and security. Until those can be answered with any certainty the annuity will languish as an option, even with government support.

Paul Petillo is the Managing Editor of Target2025.com and a fellow Boomer

Spring Cleaning for your 401(k)

Most of us like to be reminded of the things we often forget. For instance, changing the batteries in your smoke detectors is often prompted by the change of the clocks. And despite numerous reminders to do these sorts of regular reviews of our retirement plans, specifically those of us who have the defined contribution sort, we seldom do.

Right around the end of the year is bad and not because of Christmas; because many mutual funds make distributions. Right around the beginning of the year is bad because we tend to break resolutions before we even have a chance to do anything. But doing so around tax-time may be the best solution. Your 401(k) after all, is a taxable (or should I say, tax-deferred) event.

Read more here

Turning Time into Retirement Investments

It is getting towards the end of the year. And while this past ten months has been a scary ride for those that are still employed, it might be possible to turn it into a boon for Boomers close to retirement. Chances are, you have worked harder this past year than you have in any within recent memory. Chances are, this included not taking vacation time or tapping any of that sick pay your employer might give you.

Is it possible that this could be your chance to max out your 401(k)?

We have found that 2009 was not so kind to those investing in their 401(k). Employers have reduced or eliminated their matching contribution and many recent surveys have suggested that this will be slow to return. What was once considered the competitive lure for many employees has no simply become a sidebar in the search for a job. For many, and employers know this all too well, just landing employment is benefit enough.

But what about those who already have a job? What if you are a long-term employee? Many of us, as we have noted numerous times in this blog (post about matchless strategies) and on BlueCollarDollar.com, have taken the wrong path when confronted with this issue. Far too many of us reduced our contribution to our defined contribution plans when this occurred. Some have even determined that if the employer doesn't match, you shouldn't contribute either. And just as bad for your retirement future, you did nothing to help make up for that plan shortfall.

As we have noted, the best way to make up for this decrease in contribution is to increase the one you are making. For older workers, the higher salary they receive may make this possible. For younger workers, the decision becomes one of increased frugality, living well within their means and doing without some of the luxuries they may have built into their budget. If your employer contributed 3% and you contributed enough to make the match effective, your best move is to make up for the employer's shortfall.

Yet, there may be another way that your employer might be willing to allow. In an effort to get more people contributing more to these all-important accounts, the Obama administration has allowed retirement investors the option of rolling unused vacation pay or accrued sick pay into their plans.

This past year may have seen an increased workload at your job because of employee cut-backs. This may have forced you to defer a much needed vacation in favor of staying right where you were. Fear of seeming dispensable at a critical time, even though the need for vacation has been proven the best way to increase productivity. But this leaves you with an account full of unused vacation time.

Contributing this sort of payment to your 401(k) requires your employer to make some changes to their plan. Even as some have reduced the availability of their matching contributions, some have added this provision to their plans to allow exiting employees to have their unpaid time put into their 401(k) plan prior to rollovers and to allow those who did not use what they had, to use the time to contribute to existing accounts. The later can only be done if you have not maxed out your account (currently at $16,500 for those under 50 and $20,000 for those over that age).

Companies may find this incentive very alluring. Not only does it make them slightly more competitive (for one, employees are on the job more throughout the year) but it offer the illusion of a benefit increase without the actual pay increase.

If your company currently does offer this or is considering it, keep in mind that it will not come with or apply to any matching benefits the company offers. And they may also see it as a temporary offering rather than a fixed part of the plan. The only thing that is certain is the option must be nondiscriminatory.

Paul Petillo is the managing editor of BlueCollarDollar.com and a fellow Boomer

Retiring when You Can

Chances are, the lesser your wage will working, the more dependent you will be on Social Security when you retire. While at first glance this might seem a sad state of affairs in terms of a retirement plan, it is not beyond your abilities to change this outcome before you retire. If you are aged 50-years, the ability to put together a viable plan is doubly difficult. But, even considering that, it is not impossible.

Several things need to be adjusted prior to that arbitrary date.

Retire when you can
Most of us have not been very successful with our retirement planning. We have begun late in many instances and have failed to utilize our options to the fullest. Many of us have not used these plans long enough to see the benefits. Long-term investing still needs thirty years or longer to work. The vast majority who have plans have used them less than 16 years.

During this time frame, often thrust upon us as your company changed from a pension plan to a 401(k) or you changed jobs repeatedly during that period, we experienced the shock of having to educate ourselves about what our options were and then set a plan that was previously managed for us to one that was defined by us.

For numerous folks, this meant doing the wrong thing first, then, as time passed, correcting those mistakes.

Default Investing
Up until several years ago, the default investment in your 401(k) could have been anything from a simple index fund to a money market account. The later simply parked your money, and while you never lost any of it, you never were able to take advantage of market ups and downs.

Now, new employees will be defaulted into target date funds (pick a retirement year or have one picked for you). And some, after the debacle that was 2008, have switched their retirement money to just such a fund in the hopes of recovering enough invested dollars to regain some of what you may have lost and preserve what was left.

The jury is still out on whether these funds will provide what you need to get where they say they will take you. Target date funds are navigating uncharted waters with a promise to do what never has been attempted. Unlike balanced funds (usually offering a 60/40 split between stocks and bonds), target date funds re-allocate your investment over time moving from more aggressive to less with the idea that this will protect your investment over time.

Over 50 Dilemma
If you are over 50, this strategy may prove to be the wrong one. In most cases, you are entering your largest income producing years. If you are contributing more as you earn more, you may be leaving a great deal of potential on the table as these funds try and protect those invested dollars instead of growing them.

While stocks are considered risky in this period, they should not be ignored. The best structured retirement plan will separate your investments into categories. If you are currently contributing 6% of your pre-tax income to your retirement plan (and this is not enough), you need to increase that amount to the point of causing you to rethink your daily budget needs.

Each pay raise should signal an increase in contributions. And each increase should go to a more conservative investment while leaving the initial 6% fully invested in stocks. This sort of self allocation will give some risk for old money invested and less risk for new. Shifting to a target date fund does not allow for this, taking much of the potential for risk off the table.

When and How
If you can wait to take a distribution from your 401(k), it will allow it to grow further. To do this, you will need to enter retirement without a mortgage, with your financial house in order (this means adequate savings, only the minimum in credit card debt and the all important emergency account). Your expenses will not decrease in retirement. The cost of maintaining insurances as well as your property will not go away. Your health could prove to be a factor as well and should be accounted for (and worked on while you are still employed) before you retire.

Many of these costs rely on projections. While these are difficult to make with any accuracy, they are not impossible to plan for. Inflation will increase by about 3% suggesting that each year, your expenses will go up, even the fixed ones (because inflation makes your dollar worth less). Insurances might increase on average 5-10%. And taxes will depend on how much income you have but basing your projections on current income rates might prove foolhardy. Add an estimated increase of 3% per year (this includes property taxes as well).

Arriving at retirement with any outstanding debt means one thing: you will have to continue to work just to keep up with the increases. The other option, of course, is to get used to these financial burdens while you are still working. Living a little bit more frugally now will offer you the opportunity to experience what life post-work will be like.

So the three basic tenets of investing apply: get your financial house in order, channel as much money as is possible into your retirement plan (without increasing the risk of creating more debt as you scrimp) and take some risks with your invested dollars. The first tow will offset any problems you might face with the last suggestion and allow your invested dollars to do some work that too conservative approach will not permit.

It's not too late. But the strategies are different.

Paul Petillo is the Managing Editor of BlueCollarDollar.com and a fellow Boomer.

Time, Transfers and Temptations: The Overcomplicated 401(k)

While the 401(k) plan you have access to at your place of employment is a a "better-than-nothing" retirement plan doesn't mean that you should ignore the benefits of investing for your future.

There are three basic problems with the retirement plan (and how you use it) known as the 401(k).

First, for many of us, it has not been around long enough for us to take full advantage of what this type of investment scheme can offer. A full thirty years or more would be considered the optimum amount of time - which makes this a young investors game. The older investor probably has had less than fifteen years to date to grow a plan that they believe will provide enough post-work income to allow them to retire well.

People who do not have that much time should be attempting to max out the plan (either the most you can contribute or the most the IRS will allow) and keep more than what those sage financial planners suggest in stocks. Even if the equity exposure is spread across a variety of index funds, moving too much into a conservative investment such as fixed income too early will drive the available balance and potential earnings down.

For people who are in this age bracket, the focus should shift to getting your financial house in order while you have the time. Set your mortgage up for payoff as soon as possible. This can be done a number of ways: refinancing or paying down the mortgage in advance of the scheduled payoff date. While a refi is good, unless you are getting an interest rate reduction of one percentage point of better, the cost of a new loan and the ability to get one in this sort of slumping economy might not be the best way to spend those dollars.

Instead, begin a prepayment plan that is both safe and easy and has the most flexibility. For instance, did you know that if you pay one extra month a year (divided over twelve months payments - $1200 a month mortgage payment divided by twelve would allow you to make a $1300 payment) would shorten the length of the loan by eight years? A fourteenth month payment would bring the total length of the loan down to about sixteen years. This is without costly refinancing and allows you to do what you can if you can afford it. Avoid the lenders offer of a twice-a-month payment plan and secondly, be sure that when you do this, mark the extra payment as "for principal".

Do I need to tell you to do what you can to eliminate any and all outstanding credit? If you cannot payoff what you have borrowed at the end of each month, you have borrowed more than you can afford.

Secondly, your retirement account is not a savings account. It is an investment for your future. Not one single dime should be withdrawn for any other purpose than your retirement. When you are transferring a 401(k) due to a job loss or a new job, make sure you roll it over into an IRA and name a Trust or Trustee. Failure to do so will result in taxes charged against you as if you had simply withdrawn the money.

And lastly, you will not be able to invest as much but the opportunities are greater. IRAs will not provide you with as great of a pre-tax advantages as your 401(k) did, but the choices you will have as result of getting out of not-so-good plan are incredible. Shopping on the open market for a mutual fund or funds allows you to move your move across the full breadth and depth of the market, control the expenses and fees and allow you to set your goals (in terms of risk) far better.

Many 401(k) plans force employees to purchase company stock which make them less diversified. Getting out from under this type of plan will stand to be the best thing that changing jobs could offer. Granted, if your company matched contributions (some still do and many more will begin to do so again in the next several years) this will no longer happen. This is a big loss of free money. Use this as a criteria for your next job and insist it be part of the benefit package.

You can still set up an automatic payments withdrawals from your checking or savings account but there are limits. In 2010, the limit for your IRA, which is what your new rollover plan is called, will be $5,000 for individuals and $6,000 if you are over fifty. You could, if you can afford to do so, open a Roth IRA as well (a rollover into a Roth will prompt a tax penalty because Roth plans are after tax accounts). This will allow you an additional $5,000 contribution.

Keep in mind that you only have a sixty day window to do this. Your old employer may allow you to stay in your old plan. The 60 days begins when you start the action or they tell you they want you out.

What to keep in mind about your 401(k) plan and rollovers:
If you have a 401(k) plan use it and if possible, use it to its fullest.
Get your financial house in order while you are working, especially if you have only been in your 401(k) plan for less than fifteen years.
Rollover your old 401(k) into a Traditional IRA within 60 days and be careful with the paperwork. If you have more money to invest, open a Roth as well.

Paul Petillo is the Managing Editor of BlueCollarDollar.com and a fellow Boomer

The Aha! Moment

There is no doubt that an enormous amount of confusing information is still floating around about retirement planning. Folks are trotting out old mares, suggesting that slow and easy is still the best approach. Some a taking the rider off the horse altogether, instead putting them in a wagon - you know, for safety's sake. Others still are suggesting that if you don't whip this beast more than you currently are (I am in this camp) you will run out of money when you retire. That is, unless you keep working until you are so old, retirement lasts only a decade or so.

How do you sift through it and come up with a feasible plan, one that takes into consideration all of the threats and possible missteps that can occur? How do keep the plan rigid enough that you can make better-than-probable predictions about what you might be able to live on and how not to outlive your money?

Risk is in the Spotlight
Judging from what I have encountered, it must be very difficult indeed. Risk has jumped to the forefront of conversations. Many investment advisers are falling back on this thinking: If you lose less than you thought you would, then you can give us credit for suggesting the low-risk approach to your retirement investing. On the other hand, who will get the blame if what you projected your retirement accounts to hold comes up a decade short of where it should be?

We have spoken about the risk of too little risk. We have discussed the effects of only looking at upside potential, ignoring the downside (diworsifying) as an indication of future returns.

We Want New
Yet there are still those that think protection of assets is what your tax-deferred accounts should be. This is understandable. We want fast fashion as economist Juliet Schor describes it. If what we had no longer seems to be working, then something new, something better might work. For many of us who have never tried it, the something new often means less risk, not more, fewer opportunities to grow your money by slowing the potential to a trickle. This approach relies on a much heavier stake than many of us are accustomed to doing: increasing our contributions.

The gradual shift from stock exposure to bond exposure over time is a sort of false diversification. Yes, there was a ten-year period when bonds did better than stocks. And there was a twenty year period when stocks did better than bonds. In either instance, the differences were almost insignificant. Neither has outperformed the other so indisputably that you should go with one or the other.

Which is why so many suggests a mix of the two. But this ignores innumerable possibilities, allowing what could be beneficial to fall by the wayside. It encourages single index investing (if you do it outside of the popular target-date funds) and relying on a mutual fund manager to do it for you (inside a target date fund).

Doing this, you pass up the international and emerging market exposure that global investing has become. Tying your fortunes to one country, no matter how you structure your investments is no longer diversification.

There is the lack of investor acknowledgment that commodities drive a great deal of our marketplace and invested by the right hands, can add some protection over long periods of time. This cannot be accomplished inside funds that promise to decelerate your risk exposure over time using what would appear to be conventional techniques. Not to mention the fact that these funds have not been around long enough to have any provable track record, and now, their exposure to stocks has found the concept worthy of SEC scrutiny.

You can add a great deal of the risk you need simply by keeping your 401(k) actively involved. This is where you should harbor the risk you need to undertake the difficult goal of creating enough wealth. This will come at a cost that many are suggesting is not worth paying. Increased fees can be problematic, but some exposure to these markets through index funds that track smaller and more specific areas often harbor competitive fees and far better returns than their large company counterparts.

Index funds that track the largest companies or mutual funds that mimic indexes should be kept on the outside of your tax-deferred retirement accounts. (I make this argument here.)

So How Much is Retirement Going to Cost?
Attempting to predict what your future needs in retirement will be is as easy as looking at your current spending and debts. How much of those bills will you be carrying into those golden years?

If you look at your retirement plan as a risky undertaking, something you can orchestrate to be in the right place at the right time - or better, diversified enough that no one place hurts the whole of your investment plan - then you will find yourself looking to stocks as a greater portion of your portfolio.

If you still want to add a conservative element to your plan, I suggest that any new investment contribution should be directed towards that, a move preferable to diverting funds away from another investment. The key isn't increased risk, it is maintaining levels of risk that allow portfolio growth and it is increased contributions.

Paul Petillo is the Managing Editor or BlueCollarDollar.com and a fellow Boomer

Shining a Light on Your 401(k)

It Should be Easier
There are numerous obstacles that keep us from building enough wealth in our 401(k) plans. The first is as simple as beginning to invest in your retirement future. This is stressed frequently and with good reason. The earlier you begin investing, the better situated you will be for retirement in the far-off future.

The second hurdle is how much to invest. I suggests that no matter how poorly a plan you have with your employer, setting at least 5% of your pre-tax income (a number that does not have much of an impact on your take-home pay) is better than not investing at all. For first time 401(k) investors, who may need as much of their paycheck as possible, this is a good start.

The third hurdle is the company match. This is used as an incentive to get you to put some money away for your future by offering to match the first couple of percentage points. Some companies do not do right by their employees when they match only with their own company's stock or if they have lowered or withdrawn the match due to the "economic downturn".

And the last hurdle to these beginners is where to put their money. Not all plans are created equal and not all investments in these plans are worthwhile. That doesn't mean you should ignore the opportunity to invest, it simply means that your choices are not as good as they could be. This is particularly troubling if you are an older investor who may have gotten a late start or if you have changed jobs and are now enrolled in a less than adequate plan.

The Role of the Investor
Often, 401(k) users simply sit back and allow these companies to make difficult choices without their input. There is a fiduciary responsibility that is assumed by your employer when they offer you a plan like this to provide not only viable investments but opportunities to grow your money.

Becoming more vocal, even if you are the lone voice in the crowd used to be difficult. Access to necessary information was largely outside your abilities and most of the information was held close to the vest by the employer. Since January 2009, that has changed.

BrightScope, the brain child of two investment managers and a former engineer at HP, allows you to look at your company's plan in a way that was not possible previously. Designed to help human resource departments make good choices about plans, BrightScope seeks to give these folks some sort of benchmark to judge how their plan is run and how their employees access it and use it. BrightScope realized that "because benefits data has been controlled by a small group of companies that are not incentivized or governed by the same fiduciary standards that a plan sponsor must honor" difficulties in determining which is the best plan to offer their employees was not possible.

This concept understands that transparency is not what it should be and even though regulation to improve these plans may be forthcoming, waiting to id not a better choice. BrightScope it should be noted works with these HR departments and those with the fiduciary responsibility to improve those plans now.

How does it Work?
The software it employs, according to the website, works like this:
"BrightScope obtains some of its data from public sources such as the Department of Labor, the Securities and Exchange Commission, the U.S. Census Bureau, the Equal Employment Opportunity Commission, and the Bureau of Labor Statistics. Mutual fund asset allocation and fee data are obtained from mutual fund prospectuses, statements of additional information (SAI) and Form N-SAR. Mutual fund return history data is obtained from Xignite, Inc. Data on 401k fees comes from company filings, and directly from plan sponsors who work with us to improve their plan. While all participant-level data is protected and confidential, we aggregate data across comparable companies to construct relevant benchmarks for fees, plan design and plan performance. BrightScope believes it possesses the most comprehensive database of 401k information in the country. The company leverages this database to provide plan sponsors, advisers and participants with accurate and high quality data to help them make more informed decisions."

It also realizes that the cost passed on to you in the form of fees is not readily available to you and therefore must be garnered from the overall return of the investment. This is also up for regulatory change.

The company also makes some assumptions when it applies its magic to your plan. It grabs an average employee, someone who is a "44-year-old, gender-neutral individual, earning an income of $44,000 a year, with a starting account balance of $40,000". From there, it acknowledges that each plan offers different company contributions, its own set of fees (generated by the large variety of plan sponsors, banks, mutual fund families , insurance companies, etc.), what is offered in the plan and whether the investment menu quality is adequate enough to provide growth opportunities, and how soon the employee may begin to use the plan (vesting schedules). These are, to say the least, unique to each company.

After determining what the company calls the "retirement goal line", a calculation that uses actuarial tables and assumptions of how long it will take the employee to get to retirement, BrightScope then runs a simulation, thousands of them. The better the plan, the quicker the plan participant gets to retirement, the higher the rating the plan gets on a scale of 1-100.

A Step in the Right Direction
It is no easy job being a plan fiduciary. BrightScope offers some much needed assistance with the task. Understanding that the responsibilities are many, including the need to act solely in the interest of plan participants and their beneficiaries, focusing their efforts towards the "exclusive purpose of providing benefits to them" is not as easy as it sounds. Not all companies have the personnel to achieve this sort of understanding.

Many times, the task of due prudence when overseeing these plans. the ability to follow all of the documents associated with the plan, being able to determine whether the underlying investments in the plan are diversified enough and cost effective (remember the fees are net of returns), is not always within the purview of the department responsible.

While you do have the right to request all of this information yourself and you can challenge the plan as being inadequate for your needs, BrightScope makes it easier to illustrate the problem. many companies believe they have done right for their employees. They may not know otherwise.

Check out your plan here.

Paul Petillo is the Managing Editor of BlueCollarDollar.com and a concerned Boomer.