401(k) Investing Demystified for JetBlue Pilots and Crew Members
By David J. Blount, CFP®
LPL Financial Advisor
Saving for retirement is a crucial aspect of financial planning, and 401(k) plans are one of the most popular ways to do so. If you’re a JetBlue Pilot or Crew Member, the JetBlue 401(k) plan offers an excellent opportunity to build your retirement savings while enjoying various investment options and benefits. However, choosing the right plan and investments can be overwhelming, and making the wrong choices could have a significant impact on your retirement savings and whether you’re able to retire comfortably. That’s why we’ve put together this blog post to help you navigate the JetBlue 401(k) plan and make more informed decisions. Whether you’re a new pilot or crew member looking to get started or an existing participant seeking to optimize your investments, join us as we dive into the JetBlue 401(k) plan.
Understanding Target-Date Funds
JetBlue’s 401(k) plan offers the Vanguard Target Retirement line-up of target-date funds to its employees. Target-date retirement funds, also referred to as lifecycle or age-based funds, provide a convenient solution to investors by diversifying their investments across multiple asset classes based on their age and the year they plan to either retire or require the use of those funds. These funds are structured to start with a higher-risk portfolio and gradually shift toward a more conservative one as the target date approaches.
Consequently, younger investors with a longer investment horizon will have a higher allocation of stocks in their portfolio. The investment management company responsible for the target-date fund will gradually increase bonds and cash while decreasing stocks as the target date draws closer. However, it is essential to note that not all target-date funds are created equal, and investors should carefully assess the risk levels of the funds they choose. For example, the percentage of stocks held by different companies in their 2020 target-date funds could vary significantly, making a notable difference during a market downturn.
Target-risk funds, as the name suggests, aim to allocate an investor’s savings based on a specific level of risk that the investor deems appropriate. This allocation remains relatively stable with periodic rebalancing throughout the investor’s ownership of the fund. The fund manager is responsible for ensuring that the level of risk exposure stays within the specified target amount.
Target-risk funds are typically categorized as “conservative,” “moderate conservative,” “balanced,” “growth,” or “aggressive growth” based on their risk exposure. Conservative funds have the least risk and fewer stocks, while aggressive growth funds have the highest risk and more stocks among the target-risk options.
JetBlue’s 401(k) plan through Empower does not offer target-risk funds as part of their investment lineup and limits the number of other investment choices. However, crew members can still implement target-risk investing by building their own portfolio or through a Personal Choice Retirement Account (PCRA.) We offer investment strategies from Morningstar Managed Portfolios through a PCRA account, for a fee, which includes a broad range of professionally managed portfolios uniquely customized to your risk level and a personal retirement plan designed by our firm. In the next section, we will discuss the process of building your own portfolio using some of the investment asset classes available in your plan.
Build Your Own 401(k)
Instead of using a target-date fund, another option you have is to build your own portfolio inside your 401(k). To do that, the first step is to determine your target-risk level. Most 401(k) providers offer a risk tolerance questionnaire to help you discover your risk tolerance level. Once you have determined your risk tolerance level, you can begin constructing your portfolio using various asset classes.
Asset classes are the building blocks of your portfolio and represent different types of investments, such as large, medium, and small company stocks, both foreign and domestic, and bonds classified as long, intermediate, and short term, and high and low quality. Every asset class has varying degrees of risk. The least risky asset classes, in descending order, are money market, stable value, and short-term bonds, followed by intermediate-term bonds, long-term bonds, large-cap stocks, mid-cap stocks, small-cap stocks, international developed markets, international emerging markets, and commodities. Once you thoroughly understand the risk levels of each asset class, you can then create a well-diversified portfolio tailored to your target-risk level. Of course, if building a portfolio is beyond what you feel comfortable doing, please feel free to reach out to us to help you put one together or download our 401(K) Investing Simplified Guide here.
Maximize the Other Benefits
While the 401(k) is a key component of your benefits, don’t miss out on some of the other important benefits offered by JetBlue. Your options may vary depending on your employment arrangement with JetBlue and your union status. Although these may include an employee stock purchase program, where you can gain ownership of the company at a discount. We typically recommend owning no more than 5-10% of your employer’s stock in your overall investment portfolio, to avoid jeopardizing your retirement if the company’s fortunes take a turn for the worse.
Additionally, JetBlue offers disability insurance, which we highly recommended. In particular, long-term disability benefits are oftentimes much less expensive than a policy purchased outside of the company and can protect you and your family in the event that you cannot work for significant periods of time.
Lastly, consider if you need to purchase a personal life insurance policy to cover your family’s needs, as group benefits may not be sufficient or portable when you leave the company. One rule of thumb is that you should have life insurance for 10-20 times your annual salary; however, you should work with a professional to find the right amount for you. You should also be aware that you may not be able to take your life insurance with you if you leave the company. Pilots require special underwriting by insurance companies, which we are familiar with, so if you would like more information then submit an inquiry here.
Putting it All Together
JetBlue offers several benefits that can help you plan and prepare for your ideal retirement and protect your family. If you aren’t sure which investments to choose, how much to contribute, or whether you’re on the right track to having the best retirement possible, then I would love to hear from you.
One of the main reasons I became a financial advisor is to help people build their financial plan so they can pursue their personal and financial goals with confidence. If you’re interested in working with a financial planner you can trust, please reach out to schedule a complimentary call to see if our services are a match for your needs. Contact us today at service@davidblountIIPS.com or (407) 542-3249. You can also send us a message here.
David is President and CEO of Investment & Insurance Planning Services, LLC (IIPS), an independent firm that helps clients establish their financial goals and create custom financial plans to help them work towards meeting their goals. David and the team at IIPS specialize in working with pre-retirees, individuals in a career transition, L3 Harris engineers, and JetBlue pilots. David’s motivation comes from seeing his clients pursue their goals. He says, “It’s very rewarding to help people work towards making successful transitions from one career to another, start a small business, or retire.”
David received his bachelor’s degree from Troy University, and prior to becoming a financial planner in 2000, he had a nine-year career in the United States Coast Guard. He obtained the CERTIFIED FINANCIAL PLANNER™ designation in 2007. He has served as the guest financial expert on Orange Television’s Adult Lifestyle Magazine Show and frequently provides financial and retirement planning workshops. Outside of work, he enjoys spending time with his wife, Michelle, their two kids, Ryan and Alana, their dog, Jack, and visiting with friends. An avid outdoorsman, he enjoys fishing, hiking, exercise, and as a committed person of faith, he enjoys attending church and is passionate about helping people in his community. To learn more about David, connect with him on LinkedIn.
Content in this article is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Investment & Insurance Planning Solutions and LPL Financial are not affiliated with any other referenced entity.
Descriptions of plan features and benefits are subject to the plan document, which will govern in case of inconsistencies.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
An investment in a target date fund is not guaranteed at any time, including on or after the target date, the approximate date when an investor in the fund would retire and leave the workforce. Target date funds gradually shift their emphasis from more aggressive investments to more conservative ones based on the target date.
This article is intended to assist in educating you about insurance generally and not to provide personal service. Guarantees are based on the claims paying ability of the issuing company.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
Stock investing includes risks, including fluctuating prices and loss of principal.
The prices of small and mid-cap stocks are generally more volatile than large cap stocks.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
A stable value fund investment does not constitute a balanced investment program. A stable value fund is designed as a low-risk investment, but you could still lose money by investing in it. The primary risk of investing in the fund are credit risk, income risk, inflation risk and market risk.
Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions, and it may not achieve its investment objective.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.