For Mark Roberts’ Use: If your company offers a 401(k) plan, this valuable work benefit can help you save for retirement while also reducing your income tax liability. But like most financial planning tools, a 401(k) is most helpful when it is utilized correctly. Follow these five rules to reap the most benefit from your qualified retirement plan.
Understand your savings rate. Most people decide upon a default savings rate when they first begin contributing to their 401(k), and then forget about it. You might have chosen a certain percentage of your pay because it was the amount that you felt you could afford to invest. But have you investigated the potential end result of saving at this rate? You should be saving the amount of money that leads to your ultimate end goal; not simply the amount that you think you can spare.
As your career progresses, you will probably earn more money each year. Rather than setting a particular savings rate and then forgetting about it, reevaluate your contribution each year and increase it when necessary.
Consider automatic savings rate increases. Your retirement plan administrator might offer the option of automatic savings rate increases. This means that each year, your contribution will increase by a certain increment. Establishing automatic contribution increases is a terrific way to take advantage of annual raises, and save more for retirement without even “missing” the extra money.
Ask about your employer match. Your employer might offer a company match for any funds that you contribute to your retirement account. But sometimes this information is not widely advertised or known, and it can even change over the years. Stay up to date on your company’s match amount, and try to contribute at least enough to take full advantage of the match. Otherwise you are turning down free money for retirement!
Stay in the game. At some point, you might feel tempted to opt out of your company’s retirement plan for some reason. But doing so could mean that you lose important benefits, or are subject to a waiting period before you can rejoin the plan. Even if you have to reduce your contributions to the bare minimum, this is better than dropping out entirely.
Pay attention to account statements. Your retirement plan administrator probably sends you regular account statements in the mail. You might be tempted to overlook them, or let them pile up in a drawer, because these statements can be confusing and overwhelming. But staying updated on your retirement fund gives you more control over your future, and helps you to make better decisions with your money. Give us a call, and we will be happy to review your account statements and answer any questions that you might have about retirement.