My wife recently received a "Retirement Evaluation" in the mail, related to her 401(k) account. You may receive something like this from time to time, too. It is either intended as a free, helpful service from your company retirement plan or it is intended to alert you to potential problems with your plan that a third party can assist you with, for a fee.
This particular evaluation alerted her that she might be investing too conservatively, could benefit from saving more each paycheck (couldn't we all?) and her account value may be insufficient to produce the income she'll need in retirement. To remedy the situation, she could sign up for a program that will manage her account and provide advice for a monthly fee.
Of course, SWA is also in the business of managing investment accounts and providing advice, so we obviously think there is value in doing so. The difference is that SWA provides this advice on a comprehensive basis by incorporating all of your family's assets, incomes, expenses, tax rates, insurance coverage, etc. The "Retirement Evaluation," on the other hand, is looking at just one piece of the puzzle.
For example, here are a few of the many things not considered in my wife's "Retirement Evaluation:"
- Is her 401(k) invested conservatively because it is just one part of our combined family asset allocation and we are optimizing the mix of investments across all of our accounts?
- Is her savings rate to the 401(k) not particularly high because she is also saving to a Health Savings Account, which can potentially result in much more favorable tax benefits than a 401(k)?
- Does her account value seem too low to fund her retirement because it is less than 10% of our family's combined assets?
When you think about all the external variables, it becomes clear that the 401(k) management program has limited value in addressing the spectrum of financial decisions we each face. It will likely provide you with a set of cookie-cutter recommendations that might have you increasing your 401(k) savings even if, for example, the most critical need in your family right now is to get some term life insurance coverage in place. In a situation like this, it could certainly result in a little help causing more harm than good.
Only by looking at the whole picture can SWA work with our clients to prioritize their most important needs and help them to meet their goals through a variety of strategies. We are always hesitant to offer advice on a limited scope as just one missing piece of information can impact a recommendation.