13 Retirement Savings Tips for Every 401(k) Investor
Whether you are a first-time 401(k) investor or you’ve had a 401(k) for years, don’t leave your biggest financial asset to chance. Keep reading for 13 retirement savings tips that may help you become an engaged investor and make better-informed decisions about your future.
#1 Know Your Rights as a 401(k) Investor
Far too many Americans don’t understand how their 401(k) plan works or why they selected the investment accounts they did.
This may be due to the fact that when you sign up for a 401(k) plan, you’re simply given a packet of information filled with industry jargon.
Or little is explained by your plan representative or HR department.
It’s up to you to figure it out.
Couple that with a lack of education, such as defining key terms or showing people how to read their statements, and an often unhelpful HR contact, and it’s no wonder people don’t grasp what they are invested in.
With your 401(k) often being your largest asset, it’s critical you understand your rights as a 401(k) investor.
#2 Ask the Right Questions before Signing Up for a 401(k) Plan
If you have a new employer or you’re a first-time 401(k) investor, this retirement savings tip may help you start off on the right foot.
Each 401(k) plan is unique, which is why it’s important to find out about the details of your company’s plan as well as your options before you sign up.
It’s critical you know WHAT to ask.
After all, it’s your future we’re talking about here.
And it is vital you know where you’re putting your money and why.
Sadly, the 401(k) industry has systematically disconnected the average investor from his or her retirement savings.
With the rise of automatic enrollment in target date funds, complex language that is difficult to understand, and lack of financial education, it’s no wonder many investors are left confused and frustrated.
Not to worry. We’ve got you covered.
Here are 6 questions to ask before signing up for a 401(k) plan.
#3 What Every Investor Needs to Know about Rebalancing Their 401(k)
If you are like many working Americans with a 401(k), rebalancing your 401(k) is probably not one of your top priorities.
But, what if we told you that by failing to rebalance, you are essentially turning your investments (and your future retirement income) over to chance.
In the past, traditional investors have been told to follow a “buy and hold” strategy with 401(k) or other workplace retirement accounts. After all, retirement saving is a long-term game.
This buy and hold philosophy is the #1 mistake 401(k) account holders often make…and a potentially costly one that may be doing more harm than good.
Failing to regularly rebalance your 401(k) portfolio often results in significant losses during bad markets and may open you up to more risk exposure than you initially intended.
If you aren’t regularly rebalancing your account allocations, then it’s time to read up on what rebalancing is, why it may be critical to your future retirement income, and what to do moving forward.
Here’s what you need to know about rebalancing your 401(k).
#4 Know How Much You Can Contribute
The IRS has new retirement plan contribution limits for 2020, which means you have the opportunity to save even more this year.
Employee 401(k) contribution limits for 2020 have gone up from $19,000 in 2019 to $19,500. This applies to 401(k), 403(b), most 457 plans, and the federal Thrift Savings Plan.
For those age 50 and older, the 401(k) catch-up contribution limit will also increase $500–from $6,000 in 2019 to $6,500 in 2020.
This means if you’re 50 or older and need to catch up on retirement savings, you’ll be able to save $26,000 in your 401(k) in 2020.
If you turn 50 anytime during December of 2020, you’re still eligible to contribute the additional $6,500.
Click here for the full list of retirement plan contribution limits for 2020.
#5 Boost Retirement Savings without Contributing More
Funding the maximum contribution to your 401(k) or IRA isn’t the only way to boost retirement savings.
Sure, consistently contributing as much as you can–and starting as early as possible–may make a huge difference in your retirement lifestyle.
However, there is one simple thing that may potentially have a significant impact on your retirement savings…
Seeking third-party advice.
In the age of low-cost robo advisors and financial DIY tools you can access on your smartphone, many people overlook the importance and value of third-party expert advice.
Although you might have basic investment knowledge, utilizing an expert to make the moves that require skill and care may change the performance of your account and potentially boost retirement savings.
One of the reasons people’s retirement investments underperform in good or bad markets is due to human emotion.
The fear of losing money should the market drop.
The anxiety over what happened in 2008, and the fear of something similar happening again.
No one wants to lose money, but making investment decisions based on emotions may negatively impact your retirement savings.
The goal of investing is to buy low and sell high; however, emotions may cause investors to buy high and / or sell low, creating problems for investors.
In addition to managing your investments, good financial advisors act as a behavioral coach.
They help you wade through rough markets and make decisions based on data and trends, not fear and worry.
Click here to see how working with a financial advisor may help you increase your retirement income.
#6 Understand What You Are Invested In
This may be one of the most important retirement savings tips in this list.
If you have a 401(k), chances are you’ve been advised by a fund manager or your company’s plan representative to invest in target date funds–also referred to as retirement date funds and lifestyle funds.
Or, perhaps when you signed up for your plan, you were automatically enrolled into a target date fund (such as 2030, 2040, or 2050 funds).
Americans are often told the set-it-and-forget-it strategy is their best option for growing retirement savings.
The rationale is that it’s easier and simpler for the average investor because investment strategies are combined into one mutual fund that’s structured to automatically adjust account allocations as the investor moves through different life stages.
As you age toward your target retirement date, the funds shift toward more conservative investments to reduce risk.
Target date funds might make investing for retirement easier for the average person, but are they effective in helping people maximize their savings?
More and more experts claim target date funds don’t perform as well as average investors are led to believe.
Citing studies by institutional advisory firm Research Affiliates, Barron’s associate editor Randall W. Forsyth wrote in a February 2019 article…
“They [the studies] show that the standard ‘glide path’ of target-date funds, which start heavily weighted in stocks and reallocate to bonds in later years, doesn’t produce the desired results.”¹
According to Rob Arnott, chairman of the board of Research Affiliates…
“You now have a trillion-dollar industry based on ideas that were never tested.”²
In response to Arnott’s statement, MarketWatch wrote in February 2019, “A trillion dollars is an understatement. In the U.S. alone, target-date funds held $1.11 trillion in assets at the end of 2017 and were growing about 7% a year.”³
Despite these warnings, target date funds continue to rise in popularity.
So, here’s the million-dollar question…
If target date funds may not perform better, why are so many companies automatically enrolling employees in them? Keep reading to find out.
Watch the video below to see how to read a 401(k) statement.
#7 Maximize Your 401(k) Performance in 2020
An easy way to maximize your 401(k) performance this year is to contribute–at a minimum–what your company will match.
If you aren’t currently contributing what your company matches, you may be leaving a lot of money on the table…
Because company matching is like getting free money.
In some cases, it may double the amount of what you’re already saving and may increase your retirement lifestyle.
Let’s say your company matched 100% up to 6% of your pay.
With a $40,000 salary, you could put in 6% or $2,400 for the year, and the company would match this at 100%.
That’s $2,400 per year of free money that may help you grow your retirement savings and potentially help you maximize your 401(k) performance over time.
Here are 6 more ways to maximize your 401(k) in 2020.
#8 Understand Your 401(k) Plan Vesting Schedule
This next retirement savings tip is an important one that all investors should understand.
Knowing what vesting is, how it works, and what type of vesting schedule you have may help you make smart decisions when it comes to your 401(k) because you don’t always own your employer matching dollars right away.
Vesting simply means ownership when referring to a retirement plan and represents how much employer matching funds you own each year.
When you participate in your employer’s 401(k) plan, the company typically contributes a certain amount to your plan based on the amount of your annual contribution.
Vesting is your legal right to keep what your employer contributes as a company match.
However, each employer has its own requirements for vesting.
Depending on your plan’s 401(k) vesting schedule, you may not own the money your employer contributed until you are fully vested.
Any money you personally contribute is always 100% vested and is yours to keep.
If you are 100% vested, this means you own 100% of your 401(k) balance and your employer cannot take it back.
Should you change jobs before you are fully vested, depending on the vesting schedule, you will have to return part or all of the money your company matched.
Learn the types of vesting schedules and what it means for your 401(k).
#9 Alleviate Retirement Savings Stress and Meet Your Goals
The retirement savings tips in this post will do you no good if you’re always stressing about saving.
We understand that saving and investing for retirement causes stress and anxiety for many Americans.
If you are concerned you aren’t saving enough or aren’t making the best investment choices, here are a few things you can do today to take back control of your financial future:
- Sit down and create a plan for retirement. Get clear on how much you need for the lifestyle you desire. We cannot overstate how important a plan is–not only to secure your future, but also to alleviate retirement savings stress and anxiety.
- If you created a plan years ago, but haven’t followed it, then hit the reset button and rework your plan.
- If you’re stuck, reach out to a third-party expert who can help guide you. Check out our retirement calculator to calculate how professional help may improve your future retirement income.
- Do what you can today to become an engaged investor. Get instant access to our 401(k) Masterclass Videos, read books, or listen to podcasts on the topic. When you gain the necessary knowledge, you may go from being a disconnected investor to one who is engaged with your investments and overall health and well-being of your financial future.
#10 Avoid These 4 Irreversible and Costly 401(k) Rollover Mistakes
If you have recently changed to a new employer or you left that job years ago, it’s likely you have some 401(k) retirement savings that accumulated while at your former job.
Regardless of how much your 401(k) balance is, it’s important for your financial future to decide on what you’re going to do with it moving forward.
Before you make your move, it’s important to know the irreversible and costly 401(k) rollover mistakes.
Educating yourself before you do anything is the best way to safeguard your money and hard-earned retirement savings from unnecessary penalties and taxes.
Keep reading for costly 401(k) rollover mistakes to avoid.
#11 Simple Ways to Catch Up on Retirement Savings
If you are behind on retirement savings, and you need to quickly catch up on retirement savings, don’t be discouraged.
With planning and a focus on saving and investing, it is possible to make up for lost time.
Catching up first requires you to make the decision to put your financial future first.
This means you should put your retirement savings ahead of your kids’ or grandkids’ college tuition, loans to family and friends, and even expensive gifts to your children.
Your kids or grandkids have plenty of time to save for retirement.
Let them take out the student loan or find another way to raise the money needed.
The second step is to figure out how much you’re behind, and then create a plan to get ahead.
From knowing how much you need to retire to maintain your standard of living when you stop working to knowing exactly what you need to save each month, a plan helps you stay focused as you try and catch up.
Keep reading for 7 more ways to catch up on your retirement savings.
#12 Understand How the New SECURE Act Impacts Your Retirement Planning
The SECURE Act, otherwise known as Setting Every Community Up for Retirement Enhancement, passed on December 20, 2019, when it was signed into law by President Trump.
It went into effect January 1, 2020.⁴
The goal of the SECURE Act is to help people have greater access to retirement savings and avoid running out of money during retirement.
It also affects how and when you can withdraw retirement savings and transfer money upon death, among other things.
There are numerous aspects to the SECURE Act that affect retirement planning and saving for all age groups. Educate yourself today so you can make necessary changes to your retirement strategy.
Keep reading for 10 ways the SECURE Act is changing the future of retirement.
#13 Educate Yourself Today So You Have a Better Future Tomorrow
Many people would like to know how they might squeeze the most out of their 401(k) accounts.
However, they may be making serious, but correctable, mistakes when it comes to trying to maximize the performance of their 401(k) accounts.
But that’s all about to change.
401(k) Maneuver is dedicated to helping you learn AND correct these mistakes that may lead to sleepless nights, feelings of hopelessness about retirement, and frustration on where to turn for reliable help.
We invite you to check out our no-cost 401(k) Masterclass Videos.
In just 13 minutes, you’ll discover 3 strategies that may…
- Improve Your Account Performance – So you can have more money creating a fulfilling retirement.
- Manage Risk to Minimize Losses during the Bad Markets – So you can keep more of what you have made.
- Reduce Fees That Harm Account Performance – So more of your investment grows for your retirement.
We regularly post videos with financial information and updates. Check us out on YouTube.
Sources:
- MarketWatch, Opinion: Target-date funds are more expensive and less effective than this simple investment plan, February 20, 2019
- MarketWatch, Opinion: Target-date funds are more expensive and less effective than this simple investment plan, February 20, 2019
- MarketWatch, Opinion: Target-date funds are more expensive and less effective than this simple investment plan, February 20, 2019
- https://www.congress.gov/bill/116th-congress/house-bill/1994
