Most of you know what a 401(k) is. Most of you probably have one already. For those who do not know, a 401(k) is a savings plan for your retirement that is sponsored by your employer and allows you to take pre-tax dollars from your paycheck and put it into this program. 401(k)’s are one of the most beneficial retirement tools that almost any person can use. Among its many advantages, often times, companies will even match your contribution. That’s free money.
So how can you take this popular tool and make it work for you? Here’s a three-step process to making your 401(k) work for you now, so you don’t have to work in retirement.
- Take advantage of the company contribution.
Most major corporations in the United States offer some match to their employee’s contribution. Whether it be a dollar amount or a percentage of what you put in, they still match your money. This is something that HAS to be taken advantage of. The company you work for is literally giving you money, so that you save yours. Your 401(k) will be worth much more if you can contribute however much meets the max match your company can give. So, if your company’s match max is $2,000 per year, try to put at least $2,000 per year in your 401(k). That will actually give you $4,000 per year with your company’s match!
- Invest Conservatively
As age increases, it is important that conservative investing increases as well. When looking at age, conservative investing can be beneficial in several ways. The first one being that volatility gets taken out of the picture. It is more of a steady, yet smaller, return in good economic years; in bad economic years it is only a small loss.
Things to look for when investing conservatively are funds that pay dividends and have asset allocation in mostly blue chip stocks. Basically, this means stocks that are household names. Another great investment strategy is looking for bonds. They are a safer bet in any type of economy and can help retain assets with less risk associated with them.
- Start Early and Keep Going
When putting money into your 401(k), elect the option to automatically withdraw out of your paycheck. This way, you will never see it, so you will never miss it. This makes putting the money away much easier. Plus, this way also deposits the money before taxes, which is a nice incentive if the company match isn’t enough. The best advice for starting to save is to start right now because you can never have enough for retirement.
Many people go through life wondering when they will be able to retire and if they will have enough to retire. This can be a very concerning and tough question to answer. The best way to answer that question is ask yourself, “What do I want my lifestyle to be like when I retire?” This can then dictate what system you will have to follow until you reach retirement. If you use the tips above, by starting early, taking advantage of the company contribution, and investing conservatively, you could feel a little more financially safe when it comes time to retire.