Fee minimization and portfolio rebalancing are two key requirements for keeping a 401(k) on track for retirement. As such, individuals should review their 401(k) plans at least once each year to ensure that they meet current investment needs and that the expenses baked into the plan are reasonable and affordable. Read on as we cover how to review and adjust your 401(k) to make sure your retirement train hasn't jumped the tracks.

Review Quarterly Statements and Literature
Rather than tucking account statements into an old envelope until tax time or just throwing them away, as some people do, investors should read all statements as soon as they receive them. In fact, they should study them in detail for any errors. For example, investors should look to see whether the check they recently sent in was deposited into the account and that the funds and investments selected are the ones that were purchased.

In addition, investors should peruse their quarterly statements to see if the expenses that they are being charged, or per-trade charges, are comparable to the previous year. If these charges have increased - and, let's face it, they seldom go down - the investor should assess whether they are still affordable and reasonable. Investors should also compare these charges against those of similar funds to make sure that they are consistent with what is being charged throughout the industry. (For more insight, read Don't Let Brokerage Fees Undermine Your Returns and Are mutual fund performance numbers reported net of fees (operating expenses and 12b-1)?)

Investors should also look for changes in the expense ratio from year to year. Such charges will be explained in the literature that the administrator sends out. The investor should then compare this to expense ratios being charged by other funds within the plan. If another fund has lower expenses and is expected to perform well going forward, perhaps it makes sense to switch. (See Picking The Right Mutual Fund.)

Is a Broker Handling the Account?
If a broker handles your retirement account, that person is probably charging additional fees for his or her services. If you are unsure of whether a broker is charging a fee, simply ask your human resources representative, or review previous quarterly statements for itemized charges. Broker charges can easily add an extra 1-2% per year in fees. If a broker is making money off the account and you don't think that the broker's services justify his or her earning a commission, see if you can purchase the funds directly from the source. If the broker charges a management fee, check with your employer to determine whether it provides that service free of charge, as many large corporations do. You can also seek advice from your human resources representative. There may be a way to get around some of these broker fees, but you need to ask.

Check Out the Fund's Performance
How often do investors actually sit down and compare their fund's performance with other stock market benchmarks? Odds are they rarely do, and this is a mistake. If a particular fund has been consistently lagging behind major benchmarks such as the S&P 500, the Dow or the Russell 2000 for several years, the investor should consider selling it off and heading for greener pastures. (For more on this Benchmark Your Return With Indexes.)

Investors should also be cautious and should not automatically jump on a fund with unusually high returns over the last year or even the last several years. This is because the holdings in that fund may have peaked or run their course. Instead, investors should make their decision based on where they believe the market is heading, the fund's holdings, the expenses being charged, the fund's objectives and well as their own individual needs, risk tolerance and other preferences. (Find out what your risk tolerance is in Personalizing Risk Tolerance and Determining Risk And The Risk Pyramid.)

For additional details on your fund's holdings, check out your quarterly literature, call the fund directly, or review the fund's website. Along with performance numbers, the website will usually identify fairly up-to-date holdings as well as provide some commentary about what it sees as the risks and the opportunities going forward.

Any New Charges/Fine Print
Investors should also be reviewing quarterly and year-end literature to see if any new charges have been, or are about to be, instated. For example, it's possible that a particular fund may suddenly charge a 2% redemption fee if the investor liquidates his or her holdings within a 90-day period after purchase. Other charges may be instituted as well. These are then subtracted from the fund's net asset value (NAV). An investor's yearly review of his or her 401(k) is an excellent way to uncover any such new charges.

If new charges are found, perhaps it's time to change over to a fund that isn't actively managed or one that tracks a major index such as the S&P 500. Expenses for these funds are often much cheaper than for funds whose managers more actively trade their holdings.

Have Your Needs Changed?
Give some thought as to when you want to retire and how much you'll need. Also give some thought to your risk tolerance. Has anything changed from last year? If so, make sure that your holdings are consistent with your up-to-date objectives and needs. (For tips, read Rebalance Your Portfolio To Stay On Track.)

Staying on top of your 401(k) and any changes that may occur can help you get the most for your invested money and avoid unnecessary charges. Over time, small adjustments can have a significant impact on your returns.

Related Articles
  1. Retirement

    10 Ways to Save Your Retirement: It's Not Too Late

    It's not too late to start saving for your retirement, even if you took longer to start thinking about it and doing something about it.
  2. Investing

    Why Is Financial Literacy and Education so Important?

    Financial literacy is the confluence of financial, credit and debt knowledge that is necessary to make the financial decisions that are integral to our everyday lives.
  3. Investing

    10 Ways to Effectively Save for the Future

    Savings is as crucial as ever, as we deal with life changes and our needs for the future. Here are some essential steps to get started, now.
  4. Mutual Funds & ETFs

    Mutual Funds Millennials Should Avoid

    Find out what kinds of mutual funds are unsuitable for millennial investors, especially when included in millennial retirement accounts.
  5. Retirement

    This Is How You Could Live in Costa Rica for $1,000 a Month

    Explore the cost of living in Costa Rica, and learn how you could sustain a nice middle-class lifestyle for yourself on about $1,000 a month.
  6. Professionals

    How to Protect Your Portfolio from a Market Crash

    Although market crashes are usually bad news for your portfolio, there are several ways to minimize losses or even profit outright from market movement.
  7. Retirement

    How Robo-Advisors Can Help You and Your Portfolio

    Robo-advisors can add a layer of affordable help and insight to most people's portfolio management efforts, especially as the market continues to mature.
  8. Professionals

    3 Benefits of Working Longer (and Retiring Later)

    There are many reasons why folks in their 60s may want to keep working until at least age 70. Here are three.
  9. Retirement

    What Does It Cost to Retire in Costa Rica?

    Tally up the costs associated with taking your retirement in Costa Rica, and determine whether you have what it takes to live in paradise.
  10. Retirement

    5 Best Cruise Lines for a Recent Retiree

    The best cruise lines plan everything for you – the food, the entertainment and the itinerary. But pick a line with a compatible program and people.
  1. Can I borrow from my annuity to put a down payment on a house?

    You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
  2. What are the main kinds of annuities?

    There are two broad categories of annuity: fixed and variable. These categories refer to the manner in which the investment ... Read Full Answer >>
  3. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
  4. How do I get out of my annuity and transfer to a new one?

    If you decide your current annuity is not for you, there is nothing stopping you from transferring your investment to a new ... Read Full Answer >>
  5. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  6. What are the biggest disadvantages of annuities?

    Annuities can sound enticing when pitched by a salesperson who, not coincidentally, makes huge commissions selling them. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!