By Althea Chang | MainStreet.com

There’s a long-held belief that investing in a 401(k) is the best way to ensure you’ll have an income throughout retirement . Actually, you may not be able to rely on a 401(k) as your primary source of retirement income.

Many 401(k) contributors may be new to investing and look to fund managers for consistent returns over time. But, as we’ve discovered during this economic downturn, mutual funds aren’t a place where you can just plunk down your money and watch it grow. Plus, the fees you’ll have to pay and the mutual fund choice available to you may limit your returns or even add to your losses.

Placing Blame
“The rub on 401(k) plans is the additional expenses that are affiliated, and depending on the 401(k) that’s offered, the restrictions as far as what funds are offered,” says Timothy MicKey, managing director of Monument Wealth Management. Additionally, some 401(k) “trustees are not on top of things the way they should be,” he says. For example, some mutual funds that were once great investment options may be less so when a specific fund manager is no longer in charge, but 401(k) trustees may fail to update mutual fund choices in response to that. In addition, investors “have to realize that for the last 18 months, diversification did not work. Almost every sector went down,” MicKey notes.

“My biggest fear is that people were overly aggressive and waited before they made any allocation changes,” says MicKey. “People who have been hit the hardest went into very conservative products, not understanding that conservative products would be the next shoe to drop,” he adds.

Missing Pieces
“Many people would have no investments if it was not for their 401(k),” says Kathy Williams, an Oklahoma City-based financial planner.

Retirement savings plans via 401(k)s and IRAs were initially meant to play one part in an individual’s retirement income, supplementing pensions and social security benefits which make up a so-called three-legged stool. However, not all employers offer pensions, and Social Security payouts are facing steep cuts in the next few decades.

“Basically, only government and union employees have pensions now,” says William Driscoll, a Plymouth, Mass.-based certified financial planner. “Many people don’t have the ability to save adequately, so they need to think in terms of a modified lifestyle, not spending up to their income, but less.”

Real estate, for some, has replaced pensions to hold up income during retirement, as investors bought the biggest homes they could afford and flipped them for a profit during retirement. But while Driscoll says this strategy might work if you have 10 to 20 years until retirement, in this housing market, “if you want to flip it in three years and come out with six figures, you can’t really count on that.”

“You get the biggest bang for your buck with individual stock issues, but you can’t go in unless you have a diversified portfolio. You’ve got to have at least 20 companies,” MicKey says, which would require investors to do a great deal of research, which they may not have the time or the will to do.

Diversifying for Safe Savings
A number of investment advisors may be pushing diversified, age-based or target-date mutual funds for those who want to leave asset allocation to a fund manager, but funds that cater to your specific risk tolerance may actually be a better choice.

“I personally don’t like [target date funds] at all,” says MicKey. There’s nowhere in their planning that they take into consideration the economical cycle. “I’m much more an advocate of lifestyle funds … based on risk tolerance, which is a much wiser way to go.”

And while CDs may be a secure investment, “CDs serve a purpose for liquidity needs within a certain period, for example, if a client wants to buy a house within three years, go on a vacation or short term goals, not long-term,” says financial planner Williams. “Generally with the taxes that you have to pay on the interest along with low interest rates, they’re not adequate for long term investing strategies.”

Foreign exchange could increasingly play a part in long-term investing, including investing for and during retirement. “People are more savvy to the fundamentals of major economies of the world,” says Betsy Waters, global director of DBFX, Deutsche Bank’s online foreign exchange trading platform( Stock Quote: DB). Waters notes that most people already have some currency exposure in their retirement portfolios, which may allow them to hedge against other others bets, for example on domestic stocks.

Reconsidering the 401(k)
You may consider a 401(k) a must, however, if your employer matches your contributions, or if you’re lucky, makes contributions whether you do or not.

Since traditional 401(k) contributions are made with pre-tax money, the money you would have spent on taxes is invested. Your earnings are also compounded over time, which allows earnings to become part of your underlying investment.

Before you invest or consider moving your money from one fund to another, you’ll need to look at your investment horizon and risk tolerance. How many years from now do you plan to retire, and how long will you need your money to last?

When you’re looking at individual mutual funds, do your due diligence to make sure the fund is appropriate for your needs by using resources like TheStreet.com Ratings Screener.

Younger people “have a wonderful chance to get ahead of the curve.” Says MicKey. “Now is the time to dump as much as they can afford into [a 401(k)]. But if you’re in your 50s or 60s and you’re concerned about your retirement savings, you may want to meet with a financial advisor to talk about changing your strategy.

By Janet Aschkenasy | MainStreet.com

Did you ever sit through an investment education seminar at work feeling totally dumbfounded? You are not alone.

To make sure your employer’s next 401(k) investment meeting doesn’t go by in a blur, it pays to prepare in advance.

Financial professionals running group meetings will often spend up to 30 minutes or more helping you out individually, after the session concludes. And while you usually won’t get actual “advice,” telling you exactly where your 401(k) contributions should go (unless you or your employer pays for it), one-on-one financial education is frequently provided free of charge in connection with your employer’s group meeting.

Here’s how you can take full advantage:

1. Bring your financial documents. When Ron Bartlett, a financial advisor in Lexington, S.C., runs a company-sponsored investment education meeting, he advises plan participants to bring a balance sheet (a list all of your assets and liabilities), any bank CD statements, a list of company retirement plans (including those from previous employers) and an accounting of outstanding credit card debt.

Also good to have on hand: A list of your monthly mortgage obligations, IRA accounts and other investment statements, life insurance policies, Social Security statements and the value of your home. If possible, bring a copy of your last tax return, says Bartlett, as well as a list of your core financial concerns, the ones that keep you up at night.

The agreement Bartlett Financial has with the company’s broker/dealer, LPL Financial, does not permit advisors to give participants specific investment advice, but “I can supply Morningstar and S&P ratings and reports,” he says. “We have discussions with them of what investment categories they should consider.” All this is free of charge.

2. Locate a copy of your company’s summary plan description (SPD). Wondering whether you can take a loan on your 401(k) and how you need to pay it back? Curious about how long you need to work before you’re permitted to withdraw your employer’s 401(k) match? Everything you want to know is the SPD, observes William Harris, a Certified Financial Planner with WH Cornerstone Investments, in Duxbury, Mass., so it’s good to be familiar with the document before your company seminar. Every employer makes an SPD available to employees, often via the company Web site, Harris says. Check with your human resources department if you need help.

3. Find out what education tools your company offers and use them. Usually, there is an 800 number to call with questions about how your plan contributions are invested and how to make changes and when. Frequently companies also offer ongoing education and interactive services like 401(k) transfer capabilities via their Web site. Beyond that, “We’re seeing a lot of 401(k) providers do questionnaires now on risk tolerance,” says Harris, adding that “It’s gotten so sophisticated that often if you say your risk tolerance is ‘aggressive’ and you’re willing to commit a good amount to stocks, for instance, the plan administrator will offer a program recommending an asset allocation for you and allow you to hit a button and make your menu choices on the spot.”

4. Ask if one-on-one counseling is available. Financial planners are often able to capitalize on company education sessions by capturing one or two participants as personal clients, which is one reason many are happy to speak with you privately at no obligation or cost to you or your employer.

5. Don’t be afraid to ask about fees. Remember that a 401(k) fund may have an internal cost or “expense ratio” for investment management, but also a brokerage commission or “load” (a fee for advisors who get paid for ferreting out the best fund choices). If the fees are too high and your company has no match, it may make sense to open an IRA instead of a 401(k). What’s high? Harris says he’d raise an eyebrow if a bond fund were offered for more than a .75% asset fee, or if an equity fund were charging more than 1.5%, unless it’s for an international or small-cap fund where more research is required from fund companies.

How do we take inventory of our financial lives? Are you 100% satisfied with your money situation? If not, what’s keeping you from having that satisfaction?

Suppose you are happy. Could you be languishing in a safe zone missing opportunities to earn, save, or give more?

I think we’ve got three basic stages in our financial lives. Managing, growing, and giving. Which stage are you living and how do you plan to move forward?

Stage 1- Managing Your Money

Ideally we should learn the basics of managing money as children or young adults. The sad reality: Most of us learn ‘on the job’. And we screw up, sometimes hugely. In the management stage we need to develop the habits and knowledge that will allow us to create a basic level of financial security. Unfortunately, past mistakes can keep us on a financial hamster wheel if we aren’t careful. Using credit, understanding taxes, budgeting, paying debt, and having an emergency fund are milestones we need to reach before we can hope to effectively move on to growing our money.

Stage 2- Growing Your Money

You’re a master at managing your money. Now what? Time to tackle investing and taking some risks so your money can grow. This can be intimidating. Remember you want to grow your money, not lose it. If you’re clueless don’t be afraid to admit it. It’s easier than ever to broaden your financial horizons through online resources. Get over your fear of talking to a financial planner and clearly define your long-term goals.

Stage 3- Giving Your Money

Americans have a hard time with the concept of enough. We want more. I like that about us. There’s nothing wrong with wanting to amass a huge fortune. But aren’t we all here to make the world better in some way? When you have more than enough it’s thrilling to consider how surplus can be used to enrich the lives of others. Be an angel investor for a company that will create jobs. Give your grandchildren a secure financial future. Create your own organization to focus on the causes you care about. The opportunities to give are limitless and the rewards are priceless.

No matter which stage you’re living remember the point is to learn, grow, and move on.