By Olivia Sandham
1. “BUMP UP” your deferral rate.
The average 401(k) deferral rate lingers near 4%,
but this doesn’t mean your investment has to.
Increase your deferral to 10% of your paycheck, and your deferral combined
with the company match will build an income base that can last in retirement. Find out if your plan has an auto-escalation
feature, which will allow you to automatically raise your deferrals incrementally
2. “CHANGE UP” your fund allocation.
Over the long term, it takes time and skill to
choose 401(k) funds successfully. What
seemed like the proper allocation when you were 25 will most likely change when
you are 10-15 years older. If
periodically assessing your funds seems time-consuming, a target date fund or
asset allocation fund may be more appropriate.
3. “SAVE UP” your account.
There may be a handful of valid reasons for pulling
cash from your 401(k), such as a new home or business purchase, or for an
emergency situation. But you could be
charged a 10% tax penalty on early distributions taken before you are 59½, and
you may have to repay the loan within 60 days.
Instead, consider your 401(k) strictly as a retirement savings account:
money goes in and stays in until retirement.
If you do have to take a loan, repay it as soon as possible so your
money can get back to work for you in the market.
4. “FOLLOW UP” on your investments.
Make a plan for your 401(k) and keep an eye on it to
ensure you are still on track to meet your savings goals. A 401(k) is a long-term investment, which
means there will be highs and lows in performance, so you should periodically check
to make sure you’re on track. Review and
keep your quarterly statements, but don’t preoccupy yourself with looking at
your account every day. An appropriate
time to reevaluate your 401(k) plan on an annual basis would be during
re-enrollment so you can make any necessary adjustments.
5. “LINE UP” your future budget.
Once you’ve retired, you will rely on your 401(k)
savings as a stream of income. Before reaching
too near to that point, get an idea of what your future expenses will be. Understanding how your lifestyle will be
during retirement will help you make sure your 401(k) plan will be able to
cover these costs.