Handling Your 401K
When it comes to saving for retirement, most people rely on their 401K. A 401K is a great tool that can provide you with the needed income upon retirement. The problem is that most people take a very hands off approach to their 401Ks. While the account will continue to work for you even if you do nothing more that contribute the minimum amount each month, the best returns will be realized if you take a proactive approach.
You first need to realistically determine how much you can invest into the account each month. You should be adding as much as you can. Try to cut out unnecessary things in your life in favor of adding more to your 401K. Currently, you can add up to $16500 each year tax deferred. Your goal should be to reach this limit. Once you hit 50 years old, the maximum jumps another $5000. If you can’t invest the maximum, try to at least contribute 10% of your gross salary. If your employer matches a certain amount, make sure you add enough to get the full matching sum.
Next you must decide how to allocate the funds you are investing. Most 401ks invest the money in a certain way unless you specify otherwise. Standard investments tend to be very secure, but also fairly low earners. When you are still young, these allocations should lean more toward stocks and other “riskier” investments. As you near retirement, the investments should be gradually switched to safer securities such as bonds and CDs.
Once you have the initial allocation, make sure you monitor how the investments are performing. If something isn’t working, don’t be afraid to change it. Depending on market conditions, certain investments do better at certain times. Take advantage of market fluctuations and don’t be afraid to re-allocate your investments from time to time.
Remember that a 401K is a creature that is constantly changing and therefore needs constant attention in order to see the best growth. A financial advisor can help you allocate your investments for the best possible returns. If you actively monitor your 401K throughout your life, not only will the 401K itself perform better, but you will likely also find yourself more interest in investing and financial matters as a whole. This interest can quickly translate into a stronger portfolio and in some cases an earlier retirement.
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