Get the Most Out of Your 401(k)

An employer-sponsored retirement plan is one of your most powerful tools for pursuing a comfortable retirement. Even if your retirement is years away, some advance strategizing now will help you evaluate your current savings, estimate how much you’ll need to save for a comfortable retirement lifestyle.

Maximize Your Retirement Plan Contributions

When you enrolled in your retirement plan, you might have opted for the default contribution amount, which is often too low a savings rate to give you a comfortable nest egg. Many employers provide matching contributions to your account, and by taking advantage of your employer’s extra contributions, you can dramatically increase your savings over time. A good rule of thumb is to contribute at least enough to get your full employer match. It can be hard to suddenly increase your contribution rate, which is why we recommend taking a gradual approach and increasing your deferrals each year. We recommend that you save at minimum 10 percent of your salary, and gradually increase contributions to 15 or 20 percent as you approach retirement.

Understand Your Plan Features

Every 401(k) plan is a little different, and it’s important to learn about the different plan options available to you. Your plan administrator will be able to provide you with details about vesting schedules, loans, investment options, and any limitations to withdrawals that you should know about. A financial representative can help you review this document to be sure that you understand it fully.

Keep Your Savings Invested When You Switch Employers

When you leave an employer, you have a couple of basic options available to you: if allowed, you can leave your plan with your old employer; you can roll it over into an IRA or plan at your new employer; or you can cash it out. It can often seem simpler just to take a check rather than wrestle with complex paperwork, especially if the account balance is small, but this option will cost you a lot in taxes and penalties. Worse, it will potentially rob you of income in retirement.

If you no longer want to keep your plan at your old employer, the easiest way to avoid temptation is to transfer your money to your new employer or roll it over into an IRA. Talk to your employer and plan administrator to be certain that you understand timelines for moving your money and the relevant regulations regarding transfers and rollovers.

Develop a Long-Term Financial strategy

One of the best ways to help you stay on track for retirement is to develop a financial plan that takes into account your current financial circumstances and future goals. A long-term strategy can help you map out important milestones and help ensure that you are putting enough away for your future goals.

Understand Investment Risk & Time Horizon

If you have many years of employment ahead of you, you may want to consider a more aggressive investment strategy that offers higher potential returns. As you get closer to retirement, your needs and ability to absorb risk will change, and it’s important to review your investment strategy and make changes, if necessary. Most 401(k) plans offer asset allocation options to suit a variety of ages, risk tolerances, and investment goals. A financial representative can help you review your options and help ensure that your investment allocations fit your overall financial strategy.

While benefits and retirement plans can be complex, taking action on a few of the steps we’ve outlined could make a big difference for the future.