How do we improve 401k plans to get the most out of them? Participating in a company retirement account is a must if you’re serious about saving for the long term. While it can be a challenge to improve your 401k, make sure you don’t set it and forget it. It’s easy to come up with reasons not to save or to keep doing the same thing over and over. Sometimes it can be difficult to push yourself to do better whether its saving for retirement, fitness, or any other goal.
5 Steps To Improve 401k Plans
Step 1: Participate. If you’re eligible to participate in a 401k plan, do it! Some plans even have automatic enrollment to assure that their employees don’t miss out on the benefits. Don’t let automatic enrollment give you too much peace of mind. This often involves the plan choosing how much you will contribute and what fund you’ll invest in.
Step 2: Get the company match. The company match is one of the most compelling reasons to participate in a 401k. Some companies will match your contributions dollar for dollar up to a certain percentage of compensation. For example, if your salary is $60,000 and you contribute 4% of your salary or $2,400, the company will contribute an additional $2,400 for a total of $4,800. There are many different ways an employer can contribute to your 401k account. If you’re not contributing enough to receive 100% of the company match, you’re leaving money on the table!
Step 3: Save a minimum of 10% of your pay. This can be hard to do but there’s an expression that nothing worthwhile is easy. If you’re not saving 10% of your pay, ease into it. Many 401k plans will allow periodic increases. Easing into it will limit the shock to your budget. If you’re a high income earner, contributing 10% of your pay may not be an option due to the allowable limits. In 2017, the salary contribution limit is $18,000 ($24,000 age 50 or older). Contributing the maximum allowable is the ultimate goal.
Step 4: Don’t time the market. Many 401k plans offer investments that can be quite risky and it can be tempting to make aggressive investments when recent market returns have been good. When it comes to retirement funds, slow and steady wins the race. Timing the market increases the risk of loss. Rather that betting on a hot fund, create a diversified mix of investments that is appropriate based on time until retirement and risk tolerance. If you don’t have an adviser to help you select investments, many 401k plans offer target date retirement funds.
Step 5: Designate a beneficiary. Make sure you have designated a beneficiary in case something happens to you. Review the beneficiaries to assure they are up to date. Calling your investment provider or contacting the retirement plan administrator can be an easy way to see who is listed as a beneficiary. Also, many retirement accounts allow the selection of a contingent beneficiary in case something happens to you and your primary beneficiary at the same time. A quick phone call can make a big difference for your loved ones financial future.
Wherever you are on the retirement journey, these 5 steps can improve your 401k and give your retirement savings a boost.
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