Your 401(k) can be an excellent tool for ensuring financial security in your golden years. But aside from setting up your contributions, you may feel like you don’t have much influence over your 401(k) retirement savings. That doesn’t have to be the case — here are some strategies to help you get the most out of this helpful investment vehicle.
Maximize your matching benefits
401(k) plans are employer-sponsored retirement savings programs. You can grow your 401(k) by allotting a certain percentage of your paycheck to the retirement plan. Most employers help you build your funds for the future by matching your contributions up to a certain percent. Bankrate contributor James Royal urges you to take full advantage of that benefit, since it’s essentially free money. For instance, if your employer offers a 6% contribution match, but you’re only budgeting 4% of your paycheck to your 401(k), you’re missing out on that unmatched 2% when you could be investing that money for the future. While it may not seem like you’re losing much, leaving this money on the table could result in your savings being thousands of dollars lower down the line, given how compounding interest can snowball your savings over the course of decades.
Consider your investment mix
Many 401(k) plans offer a wide variety of target-date funds. Since these funds include stocks, bonds, real estate, and alternative assets, they make it easy to diversify your portfolio. If your fund’s target date is coming up within the next decade or two, its mix of investments will be highly conservative, with the goal of providing stability alongside modest growth. On the other hand, if your target date is decades in the future, you’ll have a mix of investments that prioritizes growth over stability. In other words, target-date funds help you invest in a diverse array of assets without getting caught up in the details of your investment strategy. If maximizing growth is your priority, consider switching your target-date fund or manually managing your investments. To figure out how to best allocate your assets, Consumer Reports contributor Penelope Wang suggests consulting a financial planner or using your 401(k) program’s online resources to help you make informed decisions.
Avoid withdrawals and loans
While your 401(k) retirement savings may seem like an untapped resource to help you meet your short-term needs, withdrawing money can leave you paying hefty fees — not to mention compromising your financial future. The Balance contributor Scott Spann warns against withdrawing money from your 401(k) without thoroughly familiarizing yourself with the terms and conditions of your savings program, as there are some situations where you won’t incur penalties. Spann also cautions against 401(k) loans, since these loans can leave you on the hook for sizable taxes and penalties if your employment situation changes and you’re short on funds to repay the loan. If you find yourself in this situation, Spann suggests rolling your 401(k) over into a Roth IRA to mitigate penalties.
For more advice on maximizing your 401(k) retirement savings, consider consulting a financial advisor.