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How to Make the Most of Your 401(k)

January 20, 2020

How to Make the Most of Your 401(k)Whether retirement is on the horizon or in the distant future, it’s never a bad time to ensure you have adequate savings for the future. If you’re starting a new job and beginning your 401(k) plan or you’re a seasoned vet that has been contributing for years, it’s imperative to make the most of your 401(k) contributions. One day, you’ll be glad you planned for the future.

Take Advantage of an Employer Match. The most common match is 50 cents for every dollar saved up to 6% of your pay. By taking advantage of your employer match, you’re essentially getting “free money” added to your retirement account. If possible, save enough of your pay to maximize the match and boost your balance. Keep in mind, you have to be vested in your 401(k) plan to keep your match, so find out how many years of service you need to be eligible to keep your contributions in case you leave your job.

Understand the Fees. Some 401(k) investments come with high costs which can reduce your balance over time. There are three categories of fees: investment fees, plan administration fees, and individual service fees. Investment fees are typically the largest portion of fees you’ll incur, which include the cost of investment management and other investment-related services. 

Diversify Your Assets. You can minimize the risk of your 401(k)-account losing money by spreading your balance across a mix of investment types (stocks, bonds, commodities, etc.). Having a mix of asset classes helps maximize growth while minimizing the risk of loss during weaker markets. You can also diversify by geography!

Escalate Your Contributions. Some companies offer an auto-escalation option to automatically increase your contribution annually. If you don’t have an auto-escalation option, make it a point to gradually increase your contributions once a year. A great time to make this change is when you get a raise – you’re already used to budgeting within your means, so use part of that excess money to save for your future.

Supplement with a Roth IRA. Once you’ve contributed enough to get a full match in your 401(k), consider contributing to a Roth IRA. A Roth IRA offers tax-free growth and tax-free withdrawals in retirement. You don’t get a tax break on your contributions, but it’s tax-free in retirement. This is also a great option if your tax rate is lower now than you expect it to be in the future.

What’s the right plan for you? There’s no “one size fits all” approach to retirement savings. In order to develop a saving strategy, it’s important to consider your retirement goals, lifestyle, age, salary, and more. The earlier you can start saving and planning for your retirement the better. Use Centier’s Retirement Savings Calculator to get an idea of what you need to be saving.

We can help you understand your entire asset picture as well as make recommendations regarding your financial plan. Contact us today

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