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How to Give Your 401(k) an Annual Checkup to Put Yourself in Better Position for Retirement

By Stuart Robertson

Many of us get busy and forget to check-in on our 401(k) plan on even an annual basis. And when we do, we’re often unsure of what adjustments to make to put ourselves in a better position for a more comfortable retirement. Fortunately, there are some sound moves that only require about 15 to 20 minutes and that will help you maximize your retirement savings from your 401(k):

  1. Give your 401(k) a raise when you receive a raise at work. Most experts suggest putting in 10%-15% of your paycheck toward retirement. Yet most people don’t. A smart way to increase your retirement savings is to give another percent or two of your salary to your 401(k) each time you get a raise so that you still receive more take-home pay and also put away more for retirement.

  2. How much you put in stocks, bonds, cash and the like (your “asset allocation”) is a big determining factor on how much you’ll have in retirement. Whether you pick funds on your own or prefer the convenience of a model portfolio managed by experts, do ensure you are auto-rebalancing. Because different assets will grow at different rates each year, it’s good to rebalance your retirement account(s) at least once a year if not quarterly, so you are not over-exposed in any area. There are of course no guarantees on gains or preventing losses of your portfolio but maintaining your preferred allocation can help spread the risks of your investments more in line with your risk tolerance and lower the levels of swings you might see in your account over time. Most plans have an auto-rebalance feature to automate this for you.

  3. If you feel comfortable selecting your own investments from your company’s 401(k) fund roster, look for the index funds or other low-expense options (all ShareBuilder 401k investment are index funds except the money market). Historically, low-expense funds have out-performed high expense funds over time. Check the five- and 10-year performance numbers as another checkpoint. Over a 30- or 40- year career, even paying one percent less in investment expenses can add up to hundreds of thousands of dollars more in savings.

  4. Consider how your earnings and tax situation are trending and if you want to consider making Roth 401(k) contributions if you aren’t already. If you are likely to be in a higher tax bracket or just believe taxes will be higher for you in the future, contributing some or all your contributions in the Roth 401(k) option can be a smart move. Consider your tax management needs for this year versus the future to determine what percent you may want to contribute towards Roth (after-tax) vs. tax deferred (before tax). Note that all employer matching contributions must be made tax deferred. Want more insights on the Roth 401(k) features in most plans, just check out this blog.

Extra Credit Move: If you left behind a 401(k) at another company, it may make sense to consolidate them in your current 401(k) account. Having one log-in, one phone number, and one account to manage can offer greater ease and simplicity. It also helps ensure you don’t lose sight of any of your retirement savings and makes it much easier to manage your asset allocation versus trying to do it across multiple providers and accounts. Of course, check your 401(k) plan to ensure it has the diversification and low-expense options you’re looking for. If not, an IRA may be the better place to consolidate.


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