Posted on Saturday, 30th January 2010 by Admin

More often than not, I have a client start a retirement-planning conversation by stating, “I received my 401(k) statement in the mail and my account is up X dollars for the quarter. I must be doing fairly well.” I then ask the client if I may review the statement.

I often find that my client is correct and the account value has increased over the statement period. But the increase in account value does not guarantee that the investments owned within the account have increased in value. In fact, the investments may have even lost money during the period and the account value may still increase.

Doing the math

Let’s review an example of how such a thing can happen. If a plan participant/employee started a period with an account value of $5,000 and ended the period with an account value of $7,000, a person may believe his or her investments increased by $2,000. But what if the employee deferred/contributed $4,000 during the same period? Based on this example, the total account value may have increased by $2,000, but the employee actually lost $2,000 during the period.

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Let’s do the math so we may correctly calculate the profit or loss over the period. The $5,000 beginning balance plus the employee’s deferral of $4,000 indicates the value of the account should be $9,000. With the actual account value of $7,000, the investment account lost $2,000 ($9,000 less the $7,000).

Before you ask yourself the question, let me provide you with an answer. No, the investment companies are not trying to deceive the plan participants. In fact, every 401(k) statement I have ever reviewed has always included the amount the plan participant contributed to the plan during the period. Usually, this information is on the second or third page of the statement.

So the next time you receive your retirement statement in the mail, please read the entire statement, not just the summary page. After all, it is all about your hard-earned money.

Jim Santangelo is a certified financial planner. He can be reached at .

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