It’s a Good Time of Year to Tend Your Garden

The end of the year is a good time to do a financial check-up for anyone–even those who have been pleased with the results of their Thrift Savings Plan investments. Here is practical advice on how to maximize your retirement funds.

by Don Rider

Donald G. Rider, J.D. is Collegiate Professor of Human Resources Management at University of Maryland University College. Don is a consultant to several federal agencies, helping to resolve union-management relations issues. A retired agency labor counsel, Don has served as chief negotiator and arbitration advocate on multiple occasions. To contact Don about this article or training or assistance for your agency, click here.

I’ve had good gardens and bad. Some years I kept the weeds down and engaged the garden pests and insects in mortal combat. The garden was watered and maintained religiously and the reward was a strong crop. Other years I have been less conscientious. I got sidetracked with other priorities. The weeds took control, the insects ran wild and some of the plants wilted. The garden suffered. My end-of-season results were disappointing.

Many readers have Thrift Savings or 401 (k) plans. They are very much like gardens. If you ignore them, the yield will probably disappoint. Your plan can get lost in the “weeds.” On the other hand, with proper care and feeding, your Thrift Savings or 401(k) plan can thrive. It will produce the kind of crop that can help feed you and your family for years to come. You simply cannot afford to ignore your 401 (k).

A report from the Employee Benefits Research Institute shows that just over 20% of employees in the private sector will be eligible for a traditional “company pension” ( defined benefit plan) upon retirement. This figure is declining rapidly. In contrast, most federal employees are now under FERS. It does incorporate a traditional “government pension” component. However, experts agree that a FERS pension alone cannot provide a comfortable retirement. Feds will have to tend their garden –mean their Thrift Savings plan — in order to fully enjoy their post-government years.

It tends to get quiet around the office this time of year. Therefore, it is a great time to give your Thrift or 401 (k) plan an annual checkup – -and maybe even perform some preventive maintenance.

There are at least three things you need to think about – – and the end of the year is a perfect time to do it.

1. Are there old plans hanging around?

You may have an old 401 (k) from a former employer (or an old IRA, etc) that is simply hanging around. You don’t manage it; you don’t monitor it. It’s just there. You may want to “roll over” this orphan account into your current Thrift Plan or 401 (k). A quick phone call or web site visit will get you the form you need to “roll over” that old account into your current one.

But these “old” accounts aren’t doing any harm are they? Maybe – maybe not. In the first place, you may not be actively managing these small accounts, so you are failing to maximize your return. Second, these accounts sometimes come with annual maintenance or other fees which eat away at your return. Take a good hard look at consolidating any outdated or “orphan” accounts you may have by rolling them over into your current Thrift Plan or 401 (k).

2. It’s Time to Re-balance

When you opened your current account, you probably divided your contributions into two or more different mutual funds. Maybe you put 1/3 into one type of investment, 1/3 in another and 1/3 in yet another (I do 20% in each of five different funds). Well, guess what? Some of those investments did better and some did worse over the past year or two. In other words, your Thrift Plan or 401 (k) is “out of balance.” Again, you need to go on the web site or get on the phone and move the money from one fund to another to “get back into balance” —equalize the amount of money in each of your investments. This is something I try to do during that quiet period between Christmas and New Years, each season.

3. Go Global

No one should base their investment strategy on just one person’s advice. However one thing seems obvious. Most of us need to have some portion of our Thrift Plan or 401 (k) in an international or global fund. The world is changing so rapidly that we cannot ignore growth opportunities outside the U.S. Did I really read somewhere that Starbucks is opening several stores each week in China? Over the long term (and most readers of this column are long term investors) global and international funds are going to provide an important growth vehicle for investors. You will have to prepare yourselves for some ups and downs in this more volatile part of the market. However, the long term results are likely to be pleasing. Even at [past middle] age, I am in the process of shifting more of my 401 (k) into an international fund.

4. Conclusion

Even if you have neglected your retirement garden for most of the year, a little trimming and pruning with these tools will help you produce more “green” in 2007, and the years to come.