National 401k Day serves as a great reminder for those of us who are working to participate in a 401k (or similar retirement savings plan), as well as to do a quick checkup for those workers who are already participating. 401k plans are relatively low maintenance savings vehicles by design, and as such, can be a great tool in the accumulation phase of an investor’s life cycle. However, because they are such a low-maintenance plan, sometimes things can slip through the cracks. Here are a few areas of your 401k that would be worth checking on this month –
- Employer Match – Are you participating in your plan, and if so, are you contributing enough to receive your full employer match? This is free money put directly into your retirement account – take advantage of it!
- Beneficiaries – Make sure you have a beneficiary listed, and make sure it is the right person. Marriage, divorce, and other family changes may mean that the person you listed 20 years ago isn’t the person you actually intend to leave your retirement savings to.
- Contributions – Have your contributions kept up with increases in pay, or are you at a stage where you can save more now? Contribution limits have increased in recent years, and you may be able to save more in your plan than what you currently are. Many plans offer an auto-increase feature which will increase your contribution by a set percentage each year. This can be a great way to continue to save more without really thinking about it.
- Pre or Post Tax – Many workers started saving pre-tax money in their 401k because that was the only option. More recently, many 401k plans have added post tax (Roth) options to the plan. Depending on several factors, this may be a good option to consider.
- Allocations – This is a good time to make sure the investments in your 401k are appropriate for your risk tolerance, goals, and time horizon. What was appropriate for you at age 30 may not be the right fit at age 60. Many plans have target date funds that become more conservative as you get closer to retirement, but even with those it is still a good idea to ensure that your investments are appropriate.
As you can see, there is not one right answer in any of these areas. Rather, it is important to build a plan that fits your specific risk tolerance, goals, and time horizon. This is where we, as financial professionals, can help. We spend much of our time here at LIS helping clients build a retirement plan that includes an appropriate 401k strategy. Along with that, we incorporate planning for the future preservation and distribution phases that occur as you move from working and saving toward retirement and spending. So, wherever you are in your savings journey, we invite you to give us a call to talk through the options in your plan. We are here to help, and look forward to working with you toward your retirement goals!