5 401(k) Savings Tips for the Rest of 2021
As we reach the midway point of the year, investors may be wondering: What can I do to further increase my 401(k) savings?
If you feel unprepared for the future, you aren’t alone.
According to the Schroders US Retirement Survey, only 27% of respondents said they feel very good and fully on track about their retirement.¹
Of those near or at retirement (ages 60-70), only 26% said they have enough saved for retirement. 60% said they were not prepared, and 7% said they did not know.²
The good news is, increasing 401(k) savings isn’t as difficult as many investors might think.
In fact, there are a few simple steps you can take today that may boost your 401(k) balance.
#1 Avoid Target Date Funds
Target date funds, also known as retirement date funds and lifestyle funds, are a popular choice for 401(k) savings.
According to the How America Saves 2018 report, 51% of 401(k) investors in the study were solely invested in a single target date fund.³
While target date funds are popular, it doesn’t mean it is the right choice for your 401(k) savings.
Essentially, target date funds are popular because of their sit-back-and-relax convenience for retirement savings.
The problem is that they are designed with a one-size-fits-all approach.
Target date funds (i.e., 2020, 2030, 2040, 2050 funds) are based on the date of retirement, which means they fail to take into consideration that not all investors are created equal.
If you’re younger and plan to retire in 2060, you’re told to select a 2060 fund. If you’re wanting to retire in 2030, you would select a 2030 target date fund.
In other words, investors are grouped solely based on their expected retirement date.
Other important traits, such as location, profession, salary, risk tolerance, goals, and objectives, are NOT taken into consideration.
Because everyone has different goals and objectives for the future, the one-size-fits-all design of target date funds doesn’t always work.
If you are currently in a target date fund and want to boost 401(k) savings, we suggest moving away from this option and better utilizing the options available in your workplace retirement plan.
Read more here: Are Target Date Funds Good or Bad?
#2 Regularly Rebalance Your 401(k)
Rebalancing is the process of realigning the weightings of the assets (your investments) in your portfolio to stay in line with your risk tolerance and your timeline for retirement.
This means you periodically buy or sell assets in your portfolio in order to maintain the initial desired level of asset allocation.
When was the last time you rebalanced your 401(k)? If you haven’t recently (or ever), you aren’t alone.
Even though it is important, 80% of 401(k) investors fail to do so.⁴
This is because many investors follow a set-it-and-forget-it approach to retirement savings.
The problem is that the investments you originally chose may not be the most effective ones for meeting your current 401(k) savings goals today.
Rebalancing not only helps you protect your retirement savings against potential losses, but it also allows you to take advantage of growth during good markets.
If you want to ramp up your 401(k) savings, start rebalancing your 401(k) account quarterly, or four times a year.
Learn more here: What Every Investor Needs to Know about Rebalancing a 401(k).
#3 Increase Your 401(k) Contribution Limit
One way to boost 401(k) savings is to increase how much you contribute – and contribute the maximum amount each year.
Employee 401(k) contribution limits for 2021 are $19,500.
For those age 50 and older, the 401(k) catch-up contribution is $6,500. This means, if you’re 50 or older, you are able to contribute $26,000. If you turn 50 anytime during December of 2021, you’re still eligible to contribute the additional $6,500.
Additionally, if you are self-employed or your employer allows for after-tax contributions, the overall defined contribution plan limit will increase to $58,000 for 2021– up from $57,000 in 2020. The $58,000 is a cap of the maximum $19,500 contribution limit deferral plus employer contributions.
If you can’t max out the annual contribution, at least put in enough to get the full company match because it’s like getting free money.
According to Vanguard’s How America Saves, only 12% of employees with retirement plans at work saved the then-maximum 401(k) contribution limit of $19,000 in 2019. And only 15% of those 50 or older took advantage of plans offering catch-up contributions.⁵
Check out Retirement Plan Contribution Limits for 2021 for more information.
#4 Actually Read Your 401(k) Statements
A key to increasing 401(k) savings is being knowledgeable about where you stand and how much you need to save to reach your financial goals for a comfortable retirement.
The easiest way to do so is to read your 401(k) statements.
Unfortunately, many investors treat these statements as junk mail and throw them in the garbage without giving them a second thought.
This is a big mistake!
But, let’s be honest, even if you open up the statement when it arrives, it doesn’t mean you know how to read it and understand it.
Watch this video for a visual walk-through of a 401(k) statement.
Opening and reviewing your statements helps you determine whether or not you’re on track to meet your financial goals…and allows you to take control of your financial future.
See a breakdown of statement images, graphs, and explanations in How to Read a 401(k) Statement and Understand It.
#5 Seek Expert Advice Sooner Rather Than Later
There is no shame in asking for help. In fact, it’s one of the wisest things you can do when it comes to 401(k) savings.
Consider the results of a 2014 study that compared those who had help managing their 401(k) and those who did not over a 6-year period. “On average, the median annual returns for participants in the study who got Help were more than 3% (332 basis points, net of fees) higher than people who didn’t get help.”⁶
Rather than sitting back and trusting things will work out as they should, treat your financial health the same way you would your physical health.
Just as you’d seek medical advice if you broke your leg, it’s important to seek advice from financial advisors.
No matter if you just started building your 401(k) savings or you are close to retirement, seeking help from professionals, like 401(k) Maneuver, may help you boost your savings and have a retirement of your dreams.
We provide independent, professional account management to help employees, just like you, grow and protect their 401(k) accounts.
Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that are hurting your retirement account performance.
We will review and rebalance your account for you with the goal in mind of keeping you in what is working and out of what is not.
With 401(k) Maneuver, you can go about your life doing what you love with confidence, knowing we are managing your 401(k) for you.
Have questions or concerns about your 401(k) performance? Book a complimentary 15-minute 401(k) strategy session with one of our advisors.
Book a 401(k) Strategy Session
Sources
- https://www.schroders.com/en/us/institutional/dc/retirement-survey-2021/
- https://www.schroders.com/en/sysglobalassets/digital/us/us-dc/schroders-us-retirement-survey_final-2021.pdf
- https://institutional.vanguard.com/web/c1/how-america-saves/target-date-funds
- “Over 90% of Americans make this 401(k) Mistake.” Mauri Backman, The Motley Fool.
- https://institutional.vanguard.com/ngiam/assets/pdf/has/how-america-saves-report-2020.pdf
- AON Hewitt “Help in Defined Contribution Plans: 2006 through 2012” Published May 2014
