Retirement is not as carefree as it used to be for today’s worker. There is no pension to sit back and wait for. Maybe after retirement you will still want to work or to do something new. For that too, you will need money. Makes all the more sense to give due attention to your 401(k)! In order to maximize benefits from this scheme, follow the simple steps below:
Keep your eye on the target
Preparing for retirement necessitates a simple, sensible plan. Do you want to take fewer risks? What do you want your investments to do? If you are in a position to maintain your finances, it may be wise to shift some of your investments to bonds or cash. If you are not planning to retire for at least a decade, the shift should be towards stocks. Don’t be lured by get rich quick schemes; go for solid, large scale cap stocks. With the advent of time, they will serve you well.
No time like the present
The time is now! Don’t keep putting off your retirement plan, even if you think you can’t make a worthy contribution to it. You wouldn’t want to be dilly dallying, especially if part of your contribution is matched by the employer. The compounding effect and the tax benefit of this scheme will spin some magic to your retirement plan. The trick is to start small (let’s say, 1-2 % of your pay) and gradually increase the percentage.
Hands off please!
Some companies will boast about offering its employees a retirement account that provides loans. This is not a wise choice, for several reasons: 1) Your savings plan will go up in smoke; 2) having to pay back the loan is going to interrupt your contribution to the account; 3) you will be paying tax twice on the money you return to the account. Borrowing from the retirement plan should be strictly a last resort!
Update beneficiary information
A 401(k) will be opened early in life and more often than not, people forget to update the information that was given at the start of the account. Check this information and update it accordingly in order to avoid end up naming deceased members of your family or ex-spouses as current beneficiaries. The last thing you want is to see all your hard work go to waste.
Be true to your plan
We tend to change jobs every 5-7 years. And with a new job, most people break the routine of contributing to the retirement plan. You might take on a more high profile, high paying job but don’t go overboard and neglect your account, or worse, tell your previous boss to just give you the cash in the 401(k) account. Thirty years down the line, it will come back to haunt you. Each time you join a new company, consider how you can do it without hurting your 401(k) account. Ideally, you can start contributing a higher percentage of your pay towards your retirement. If your new employer offers better investments options in its plan, it’s time to close the old account and open up a new one. |
