2025 Guide: How These 401(k) Red Flags Could Cost You Thousands in Retirement Savings
Discover the critical warning signs in your 401(k) plan that could be draining your retirement funds. Learn from experts how to identify and address these costly issues to secure your financial future.
Many employees with employer-sponsored retirement plans, like 401(k)s, risk losing substantial amounts of money due to regulatory breaches or fiduciary missteps.
For instance, Southwest Airlines recently faced a class-action lawsuit from employees alleging that the company offered underperforming investment options, resulting in millions lost in potential retirement savings.
According to a recent study by Abernathy Daley 401k Consultants, nearly 84% of American retirement plans exhibit at least one form of violation, such as fiduciary failures or plan mismanagement, often unnoticed by employees.
Investopedia interviewed Matt Daley, President of Abernathy-Daley, and CEO Steven Abernathy to shed light on these warning signs and empower employees to recognize them.
How Red Flags Impact Your Retirement Savings
Matt Daley explains that these red flags often stem from plan sponsors neglecting regular reviews, leaving employees exposed to high-cost, low-performing funds. This neglect can significantly diminish an individual's lifetime savings potential.
Steven Abernathy highlights the profound effect of fees: switching from a fund charging 1.5% annually to one charging 0.1% could save hundreds of thousands of dollars over 30 years, directly influencing retirement lifestyle quality.
Understanding Your Retirement Needs
Knowing your retirement target number and how much to save from each paycheck is essential. Unfortunately, most employees have yet to consider these fundamental questions, which are vital for long-term financial health.
Steps to Identify and Address Red Flags
While fiduciaries are responsible for monitoring plan integrity, employees should educate themselves and actively engage with plan advisors. Scheduling one-on-one consultations can help employees understand their personal savings goals.
Employees can also request recent benchmarking reports from HR, which compare their plan’s performance against industry standards. Independent benchmarking audits, conducted annually, provide unbiased insights into plan health.
If red flags are detected, the first step is to communicate concerns to HR and inquire about corrective actions. Transparency and proactive dialogue ensure that your retirement savings are protected.
Steven Abernathy likens this vigilance to being a passenger alerting a driver speeding: staying informed helps keep your retirement plan on the right track.
Ultimately, having clear visibility into your retirement plan’s performance fosters confidence that your future is secure.
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