08/26/2014 05:27 pm ET Updated Oct 26, 2014

In Retirement Planning, One Size Does Not Fit All

When it comes to retirement planning, one size does not fit all. Let's say two coworkers are both turning 40 this year. One is married with four growing kids, and the other is single, focusing on a side business that brings in additional income. It's clear that these two individuals' financial pictures are not the same. But as it turns out, they are investing their retirement dollars into the same fund with the same exact mix of stocks, bonds and cash investments simply because they are the same age.

This scenario, while hypothetical, is not unusual. That's because one of the most popular ways to save in a 401(k) is through a target-date fund, which adjusts its mix of assets over time based solely on an assumed date of retirement. While age is one important consideration in allocating 401(k) dollars, it's certainly not the only one - there's also salary, account balance, savings rate, marital status, state income tax rate and many other factors to take into account.

Rather than assume that all 40-year-olds have the same savings goals and needs, 401(k) plan providers can address this issue through a much more personalized approach. In practice, this means offering and educating participants about the potential benefits of professional 401(k) advice that accounts for much more than just age when it comes to the particulars of each saver's situation.

As a participant, you can take an active role in tailoring your 401(k) account by availing yourself of any such advice that is part of your 401(k) plan. Choosing investments isn't easy, so talking with a financial professional can be a great way to figure out how much to allocate to investments that are in line with your goals and risk tolerance, what portion of your salary to contribute from each paycheck, and when it's appropriate to rebalance your investments.

The results can be tangible. We've observed that 401(k) savers who used third-party, independent advice tended to ramp up their savings rate, were better diversified and stuck with their investing decisions even during times of market uncertainty.* The reality is, though, many people are not taking advantage of this important benefit, even when it is offered as part of their 401(k). A recent survey found that while nearly nine in ten 401(k) participants seek out help to change the oil in their car, less than a quarter seek help when choosing their 401(k) investments.**

Something as important as a 401(k) - a long-term savings vehicle that is for many people their largest or only source of retirement income - deserves the kind of care and professional management we employ in so many other areas of our lives. It's hard to imagine that an outfit off the rack would fit you as well as one that's made with your measurements in mind, and the same goes for your retirement investments. We are all unique, and while two people may be at similar points in their careers, their savings goals can be drastically different. Default investments like target date funds can't be expected to meet everyone's individual needs, so ask for some help along the way to arrive at a savings path that suits your life and retirement goals. Many 401(k) plans offer this kind of help. Take advantage of it.

* Charles Schwab in conjunction with Koski Research, The New Rules of Engagement for 401(k) Plans, 2010. Retirement plan investment advice was formulated and provided by GuidedChoice Asset Management, Inc.® (GuidedChoice), which is not affiliated with or an agent of Charles Schwab & Co., Inc. (CS&Co.), a federally registered investment advisor; Schwab Retirement Plan Services, Inc.; or any of their affiliates.

** Schwab Retirement Plan Services, Inc. in conjunction with Koski Research, 401(k) Participant Survey, 2014.

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