Yahoo Finance 3 Signs You Have a 'Zombie' 401(k)
Did you know that, according to the National Retail Federation, the zombie is one of the five most popular Halloween costumes this year? Any avid watcher of "The Walking Dead" wouldn't be surprised, given the popularity of zombies in pop culture today. What you might not be aware of, however, is that the zombie apocalypse has already begun -- and your 401(k) may be infected.
A zombie 401(k) is a retirement plan account that's been forgotten and left in a state somewhere between dead and alive. Without a vaccine to cure a zombie 401(k), it's almost certain to come back and bite you later. Here are three signs your 401(k) account is afflicted, and what you can do to bring it back to the land of the living:
1. You can't remember the last time you rebalanced. Suppose your portfolio has 60 percent of your money allocated to stock funds and 40 percent allocated to bond funds. As stocks posted higher returns, you failed to rebalance and your allocation gradually shifted, with 85 percent allocated to stock funds and 15 percent allocated to bond funds. Regardless of your hypothetical returns, you're now exposed to a much higher risk level than you originally selected. More importantly, you would be subjecting your retirement nest egg to potentially huge losses should stock funds take a dive.
Rebalancing, the profession's term for performing tuneups on your investments, helps prevent your portfolio from becoming lopsided as it did in the above example. Without rebalancing, you could be exposing your portfolio to more risk than you'd like, akin to wandering into a zombie-infested building without a single weapon on hand.
The cure. Rebalance your account regularly (at least twice per year) to bring it back in line with your allocation -- one based on your risk tolerance, investing timeline and market conditions. If it is offered by your plan administrator, you should sign up for auto-rebalancing. If auto-rebalance isn't available, don't forget to periodically rebalance your account yourself, or enlist the help of a professional to show you what to do.
2. You haven't increased your 401(k) contributions since opening the account. A 2014 survey of millionaires asked what actions contributed most to their financial success. The top answer was "saving early and regularly." When was the last time you upped your 401(k) contribution amount?
The Internal Revenue Service sets annual limits on the amount of money you can contribute to employer-sponsored retirement plans. For 2014, savers under the age of 50 are able to sock away up to $17,500 in their 401(k), but savers age 50 and over are allowed to contribute an additional $5,500 on top of that. Next year, the limits increase by $500 to $18,000 and $6,000, respectively. If that sounds like a lot of money, it is -- but you can take baby steps to get there.
The cure. Save as much as you can for as long as you can, even if you start small. As your income increases, take advantage of your 401(k)'s automatic increase feature (if offered), or set calendar reminders to increase your 401(k) contributions by 1 percent annually. In addition, adjust your savings rate on your own when you receive a raise or tax refund, change your budget or finish paying off debt.
3. You've changed jobs multiple times without rolling over your 401(k) account. A 2013 survey by ING Direct USA showed half of American adults who participated in an employer-sponsored retirement plan, such as a 401(k), have left an account at a previous employer. These "orphaned" accounts represented more than $1 trillion in investment dollars in 2010.
Whether you forgot about the money or are unsure where it is, tracking down your old 401(k) accounts is now priority No. 1. Every dollar counts in retirement, and even a small account balance can make a big difference down the line. You wouldn't leave even the smallest bag of supplies behind in the zombie apocalypse, would you?
The cure. Locate an old 401(k) account immediately, by calling the human resources departments at your former employers. The Pension Benefit Guaranty Corporation or National Registry of Unclaimed Retirement Benefits may also be able to help. Once you find those orphaned accounts, it's time to move them. A general rule of thumb: If your account balance is less than $10,000, roll it over to your current 401(k) plan (if allowed). If your balance is greater than $10,000, consider a rollover to an individual retirement account.
Like a typical zombie, the zombie 401(k) wanders around lifelessly without a sense of direction or purpose -- not because of a virus or plague, but because of inaction and apathy on the part of its owner. By becoming a more active and engaged participant, you can help prevent further neglect of your retirement nest egg and save your 401(k) from this scourge. And if all else fails, you better hope you have a Rick Grimes in your corner.
Scott Holsopple is the president of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.
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