If you have a 401(k) plan, the moves you make in the next few months could have a heavy impact on your retirement.
When you’re ready to retire, making the most out of your 401(k) is a life saver, and can even help wind you up a retirement millionaire. To get you there, you’ll need a solid plan to take you from wherever you currently are financially, to where you want to be.
Here, CKS Summit Group advises on three key strategies that can help you get the most out of your 401(k).
All 401(k) plans cost money. The fees you pay come out of your investment returns. There are administrative fees, such as record-keeping and account rollovers, and then there are investments fees, like the expense ratios on mutual funds. You can’t avoid fees completely, but you may be able to reduce them by choosing your investments carefully. Consider this example posted by the Department of Labor:
‘Say you start with a 401(k) balance of $25,000 that generates a 7% average annual return over the next 35 years. If you pay 0.5% in annual fees and expenses, your account will grow to $227,000. However, increase the fees and expenses to 1.5% and you’ll end up with only $163,000—effectively handing over an additional $64,000 to pay administrators and investment companies.’
You can’t avoid all of the costs associated with your 401(k) plan. They are determined by the deal your employer made with the financial services company that manages the plan. The Department of Labor has rules that require workers be given information on fees and charges so they can make informed investment decisions.
Always read the 401(k) prospectus carefully to learn about fees associated with your investments – and talk to your employer about adding more options if it doesn’t offer any low-fee investments suitable. (Try keeping your fees under 1% of your portfolio per year. Or better still lower than 1%.)
While it’s never too early (or late) to start contributing to your 401(k), the earlier the better. By making small, regular investments starting in your 20s or early 30s, your savings will grow tax-free for 30 to 40 years. When it comes to investing, time is a big advantage. Here are three reasons why:
- More contributions: The earlier that you start, the more contributions you are setting aside per pay period toward retirement.
- Employer match: Company contributions are like guaranteed investment returns that amplify your own contributions. Always take full advantage!
- Compounding interest: Combine ongoing contributions and appreciation and you start to see exponential growth over time.
The earlier you start, the longer you have to potentially grow your nest egg. So invest early and invest often. The easiest way to do this is by automatically deferring a percentage of each paycheck for retirement.
Once your portfolio is in place, monitor its performance and follow best practices as you go. From diversifying to rebalancing, it’s crucial to keep tabs on your 401(k) plan to ensure you’re maximizing benefits along the way.
And don’t be tempted to dip into it. Borrowing against 401(k) assets can be tempting if times get tight. However, doing this voids the tax benefits of investing in a defined-benefit plan since you’ll have to repay the loan in after-tax dollars. What’s more, you’ll be assessed interest and possibly fees on the loan.
If you want help with your 401(k) strategy, consider hiring an experienced financial planner who’s expertise are in retirement income strategies. A professional planner can also give you advice on stock market volatility, suitable investments to consider and ultimately bring you fresh new ideas for your retirement income.
Managing your 401(k) wisely for the rest of the year could have a big long-term impact. It really pays to employ these three strategies between now and when 2020 comes to a close.
With the ability to currently sock away $19,500 per year (or $26,000 if you’re over age 50) in a tax-advantaged way, it’s fairly straightforward to wind up a millionaire in retirement just by using your 401(k). Of course, just because it’s straightforward, that doesn’t mean it’s easy…
Celebrating over 20 years, CKS Summit Group is a retirement income planning firm headquartered in Clinton Township, Michigan with clients throughout the United States.
Our focus is to bring you fresh new ideas for your retirement income. Our cutting edge tactical portfolios help our clients achieve safe, healthy growth of their savings and preservation of their principal balance.
We design plans which are specifically structured to limit downside stock market risk. This allows us to protect our client’s assets while providing them with strategies for achieving effective tax reduction and inflation protection.
Come experience the new evolution of Retirement Income Planning. Get in touch here to set up your complimentary strategy session today.