4 Keys to Achieving Better 401k Results
There’s no time quite like summer to find fun ways to spend money. we may be wrong, but we’re pretty sure that getting better 401k results rarely – if ever – makes the top five of the “fun” things to think about doing with your money while on vacation. But the truth is, even though you’re taking time off, your retirement account is not. The market’s changing, your plan offerings may be changing, and your goals may be, too. With just a few minutes of effort (really, just minutes), you can quickly assess if you’re on track to the ultimate vacation from work down the road. Here’s what I recommend:
REVIEW YOUR CONTRIBUTION RATE
With the decrease and elimination of many pension plans, many advisors suggest saving at least 15 percent of your pre-tax income to be able to replace your working income in retirement. If you aren’t at that level, set a course to get there. Pick regular intervals (every six months or raise time) and commit to add an additional percent or three or four to get to that 15 percent ASAP.
MAKE SURE YOU’RE GETTING THE MATCH
If you only do one thing, this is it. Make sure you are contributing enough to get any employer match that may be offered. If your employer offers a 5 percent dollar-for-dollar match and you are only putting in 3 percent of your pay, you are literally letting “free” money slip through your fingers. By getting every dollar in company match, you double your contribution rate without lifting a finger.
REVIEW YOUR CURRENT ALLOCATION VERSUS WHAT YOU WANT YOUR ACTUAL ALLOCATION TO BE
Over the last few years (particularly last year) the stock market has had very strong gains. If you haven’t looked at your allocations in a few years, things may have shifted. What was once a 70 percent stock fund allocation may not be sitting above 80 percent. While growth is good, it does put you at risk of having too many nest eggs in one basket. If the market suddenly turns, your exposure is now greater than what you may have intended. A quick look and rebalance of your allocations can reduce your risk and protect your savings.
REVIEW YOUR PLAN OFFERINGS
Make sure you’re familiar with any new features that may have been added to your plan, that you should be taking advantage of. Often new funds are added that may be better performing than previous funds or represent asset classes that didn’t exist in the past. Another new feature to look for is auto-escalation. This feature automatically increases the percentage of your pay going into the plan on an annual basis. If this is available as an opt-in feature, I strongly encourage electing to use it.
Whether you’re taking a number of extended weekends or a week-long break, use some of that time to review your 401k. What you learn and how you respond could go a long way to helping you enjoy your vacation even more and ensure many more relaxing days in the future.