If you don’t know how to read a 401(k) statement, much less understand it, then you want to keep watching.

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We’re breaking down why it’s vital to your retirement future that you look at your statement, but also how to read and understand the information presented.
Why You Need to Open and Read Your 401(k) Statements
Many investors approach their 401(k)s with a set-it-and-forget-it strategy. This is not advisable as 401(k)s are often people’s largest asset come retirement.

If you don’t pay attention to how your 401(k) is performing, understand what you’re paying in fees, or rebalance at least quarterly, you are not in control of your financial future.

Here’s a breakdown of the 3 reasons you want to make it a point to open and read your 401(k) statements:

You get to see how your 401(k) is performing.
You understand what you are paying in fees.
This is the part of your retirement that you control.
This last reason is critical because the three-legged stool of retirement is all but gone.
The stool once consisted of Pensions, Social Security, and Personal Savings.
Pensions, for the most part, are no longer a part of many workplaces. If you still have one, you are one of the lucky few.
The future of Social Security is uncertain. We hear daily the problems with Social Security running out of money or delaying the dates you may receive your income.
That leaves us with Personal Savings, which includes your 401(k). Personal Savings is the only leg remaining that people can count on to support them in retirement.
How to Read Your 401(k) Statement Front Page Overview
Not all 401(k) statements are the same. In fact, there are hundreds of different types of 401(k) statements based on the company you work for and the plan you are in.

While they might look different, most statement front pages contain the following summary information of your account:

401k Basic information
401k account summary
401k Investment allocation summary
401k Risk analysis/retirement goals progress

The following is an example of what is on the front page of most statements.

Let’s break down each section in detail.

Basic Information Section
401(k) Plan Name and Investment Plan Sponsor Contact Information
Your 401k Contact Information
401k Statement Period
Your 401k Beneficiary(ies)
Your Personal 401k Rate of Return

401k account Summary Section
The account summary section often differs greatly from company to company. Here are two examples of what an account summary might look like.
Below is the information you may find in this section:

Beginning 401k Balance
Your 401k Contributions
Employer 401k Contributions – This is the amount your employer put in for you (the company match).
401k Fees
Your 401k Distributions
401k Investment Gain/Loss
401k Loan Repayments
401k Dividends/Interest
401k Ending Balance –
401k Vested Balance –
Outstanding 401k Loan Balance

401k Investment Allocation Summary Section
Asset allocation is defined as dividing an investment portfolio among different asset categories.

How you choose your investments is usually determined by your risk tolerance and time until you reach retirement.

Many people think that their company takes care of this for them. However, this is not the case. Your company cannot and will not. It’s your account, not theirs.

Again, another reason to open and read your 401(k) statements and take control of your financial future.

Other terms that you may see on your statement for this section are Balance by Asset Class, Current Investment Mix, Asset Allocation Summary, or simply, Your Positions or Holdings.

On your 401(k) statement, you will usually see a pie chart summary (like in the image above) of where and how your money is allocated between different asset classes such as:

Stocks (Large Cap/Mid Cap/International)
Bonds
Money Market/Stable Value/Cash
Company Stock
Other Investments
Risk Analysis/Retirement Goals Progress Section

The last section on most front pages will usually show either your risk profile or retirement goals progress.

Some of the larger 401(k) plans will have a section on the front page that tells you what your risk tolerance is based on your current holdings, as well as if you are on track to retire comfortably.

This concludes video # 1 in this series, “How To Read A 401k Statement, and Actually Understand it.”
I hope it was of value.
In the 2nd part of this series, we will cover in much more detail, the activity, transactions, fees and your investment options inside your 401k statement. Watch for the next video playing immediately after this one. Thank you….(read more)

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