Question: My employer’s 401(k) plan offers lousy investment options. I have been maxing out my contributions, but I am somewhat reluctant to keep on putting my money there. What are my options?
—Rick N., Monument
Answer: You do have options. Take action — it’s your money!
Here are some steps:
• Find out if your plan offers a self-directed brokerage option. Only about 16 percent of all 401(k) plans do, but it’s worth finding out if yours is one of them. The feature typically carries an extra fee, and there may be a limit to the amount you can invest, but it’s a start.
• Use your other retirement plans — IRA or Roth IRA — to invest in categories that your 401(k) lacks. If your 401(k) offers decent U.S. investment options, load up on them. Or use your IRA to build up international stocks and bonds.
• Become an activist! Rally fellow employees to support your case in front of HR. Your boss is probably heavily invested in the same lousy plan. Maybe he or she is equally motivated to put improvements in place. Arm yourself with knowledge. Compare fees in your current plan to a less expensive plan with a more extensive menu of investment options to make your point.
Question: My husband’s income has been cut by a third and we live on a really tight budget. We cut back everywhere we could but that is not enough. For example, we can no longer afford our life insurance premiums. What can we do?
—Connie and John L., Colorado Springs
Answer: That’s a tough decision. Many of us are looking for ways to tighten the budget these days. However, cancelling a life insurance policy can be expensive and risky.
Some policies carry penalties for early cancellation. More importantly, you may find that you can’t qualify for new life insurance if you drop the one you have. Before you follow that impulse, ask yourself this question:
Why did we buy this coverage in the first place? Think through your current situation. Who will be impacted financially if you die prematurely? Is the situation the same now as it was when you first purchased life insurance?
Once you remind yourself of why you need the coverage, explore these options to lower your premiums:
• Reduce the amount of your coverage.
• Ask your agent if you can lower your premiums without compromising the guarantees of your policy.
• Ask if you can skip a payment without penalty.
• If you are young and healthy, consider replacing your current policy with less expensive life insurance. Do not cancel your old policy until you qualify for a new one!
It’s hard to pay premiums when money is tight. Life insurance doesn’t produce immediate visible benefits, so it’s tempting to cross it off the budget. Think through the risks. You may end up putting a loved one in real jeopardy if you make that choice. You do have other options before dropping the policy completely.
Mystified by money? Ask Denisa and improve your financial literacy. Denisa Tova MBA, CFP®, CDFA is a Colorado Springs-based Certified Financial Planner and CEO of DaVinci Financial Planning. Submit financial questions to her at denisa.tova@gazette.com.
