If you are considering opening a retirement plan or have just recently enrolled in a 401k retirement plans, you may realize that 401k’s make it very easy for you to start saving for your retirement. Your contributions are deducted for you, invested for you, and then a statement is sent to you without you having to do much of anything. But, there are a few things to keep in mind to make sure you are maximizing your benefit and getting the most bang for your buck.
End date – it may be hard to think about now, but having a retirement date or age in mind will help you plan for how much money you will need to save. If possible, work with your financial advisor to help determine when you would like to retire. There are also online calculators you can use that will help do the math. Keep in mind; nothing stays the same, so you will have to be flexible over time to deal with life changes like health issues, unexpected expenses or even unexpected bonuses.
Budgeting – how much can you afford each month? The bare minimum or the minimum needed for your employer match might not be enough to reach your goal. So, implementing a budget and then determining what you can afford to contribute will help get you on the right path. Also, you will want to increase your contribution each year.
Risk Profile – you’ve heard it before, but diversify, diversify, diversify. Determine how much risk you feel comfortable with, and then mix up your investments to help protect against volatility. Meeting with your financial advisor is a smart move. They can help you define what investments are best for you and your goals. You will also want your advisor to rebalance your account once or twice a year.
Don’t Dip – a common mistake investors make is dipping into their 401k. Instead, set up another savings account for things that pop up. Dipping into your retirement can have negative consequences like penalties and taxes. Having a “just in case” savings account can help you keep that 401k off limits.