Everyone knows that the most prolific new year’s resolutions center around health and wellness. However, staying fit isn’t relegated to being in tip-top physical shape. It’s also important from a fiscal perspective. In fact, many people treat the beginning of the year as a prime time to contemplate their finances.
Really, the first quarter of any year is a terrific time to look over your investments, especially that 401(k). After all, you’re diving headfirst into tax season. Plus, you’re probably gearing up to set aside funds for extra pleasures like spring and summer vacations. Why not take a little extra time and make sure your retirement plan is on the right track?
Where and how should you start? Use the following suggestions as springboards to ensure your 401(k) is working for you. While you’re at it, put an annual ticker in your scheduler to remind yourself to check 401(k)’s pulse.
1. Make sure you’re part of your company’s 401(k).
First thing’s first: You have to be “in it” to “win it.” In other words, you need a 401(k) to get the benefits. Yet you’d be surprised at how often newer employees forgo investing in their employers' small business 401(k) plan. They have a lot on their minds while onboarding, and assume they’ll sign up later. Or, they worry that putting money into a 401(k) will starve them of needed cash now. Only later do they realize they missed the boat on a major investment vehicle.
If you haven’t ever seen a statement about your corporate 401(k), you might never have joined. Ask your human resources representative to investigate for you. Don’t assume your company is too small for a 401(k), either. Even startups can afford forward-thinking retirement plans without minimum participation levels.
2. Max out your employer’s 401(k) match.
What’s one of the biggest advantages to getting into your company’s 401(k)? For most people, it’s the employer 401(k) match. The most common match amount is 50 cents for each dollar, up to a certain percentage of the worker’s salary. In other words, for every one dollar you put in, your employer will pony up 50 cents. It might not seem like a lot, but it adds up.
Here’s the secret, though: Too many employees don’t take full advantage of the match. For instance, they only allow a small percentage of their paycheck to go into the 401(k). That’s like leaving money on the table. Therefore, find out your employer’s match and do your best to reach it.
3. Invest a percentage of your pay into your 401(k).
Have you allotted a specific dollar figure to go into your 401(k) every two weeks or month? The amount could be far too conservative. Consider this: Over time, your salary should increase due to cost of living raises and promotions. Let’s say you’re putting $2,500 annually into your 401(k) now. In 10 years, the $2,500 will represent a smaller portion of your pay, so be sure to check in on it from time to time.
If at all possible, switch your retirement fund contribution to a percentage of your salary rather than a set dollar amount. You won’t have to change anything for the percentage of your salary put into your 401(k) to remain consistent.
4. Try to increase your 401(k) contribution percentage.
Speaking of percentages, you may want to test out investing larger percentages of your pay. Some financial advisors recommend putting up to 20% of your paycheck into tax-free vehicles including 401(k) packages. That might seem radically high, but it can allow you to build quite a handsome retirement nest egg.
Whether or not you can reach the 20% mark depends on plenty of factors, including your risk tolerance and needs. However, you may want to crunch the numbers. Going above your employer’s match isn’t necessarily a bad idea because you’re still saving for later. Just be sure that you’re not going to strap yourself or your family too tightly.
5. Plan to stay with your employer until you’re vested.
Remember that company 401(k) match? There’s a bit of a hitch: You have to stay employed in order to receive a full match. This is called the 401(k) vesting schedule. Every employer has its own vesting schedule, so grab a copy of yours. You’ll need to work for the company long enough to get up to 100% of the match. Otherwise, you might not get any match at all.
As an example, your employer may offer partial matches until you reach five years of employment. At the five-year mark, even if you leave to work elsewhere, you’ll get the match. On the other hand, if you make your exit too early, you could strip your 401(k) of matches. Consequently, think twice about going to another organization, especially if you’re close to being fully vested.
6. Keep your current and future money goals in mind.
As you begin to get more intimate with your 401(k) plan and its growth, start dreaming. Plan for your future. Do you want to own a house? Set aside money for college for kids or even your own continuing education? Buy investment properties? Map out your short-term and long-term money objectives.
Having goals in mind will help you decide how to proceed with your 401(k). Maybe you want to work with a professional financial planner to open a personal IRA, too. Perhaps you’d like to dabble in other investment opportunities. Whatever you desire, write it all down. Keeping your goals front and center helps you stay the course and avoid making missteps.
Not everyone has the chance to be part of a 401(k). That’s why it’s so critical for you to take your opportunity to invest seriously. Take the time to do a little legwork and get to know your retirement plan. It’s a convenient, secure method to help build wealth. Plus, Future You will appreciate your diligence and commitment.