5 Steps to Rescue Your 401(k)


Please note the publish date of this blog. Financial information, market conditions, and other data mentioned in this post may no longer be accurate or relevant.

Do you know what’s in your 401(k) plan? If you’re like most people, the answer is a resounding “no.” Most plans read like stereo instructions, so you’re not the only one who doesn’t know about their 401(k) plan. However confusing, complicated and decision-heavy these plans are, they’re simply too important to be ignored. And while a 401(k) plan overhaul takes time and expertise, put your plan on the road to success by following five steps.

401(k) Plan Success

Step 1: Enroll and Get the Match. For starters, make sure you are actually signed up in a plan. If you’re not, ask the HR department for a sign-up form. Many employers match you dollar for dollar up to a certain percentage of income, so if your employer offers a match on the first 3% of salary, you should contribute at least 3% of your salary. If you do not contribute, you are leaving behind a guaranteed 100% return on the matched money. Three percent is just a start—you should be contributing 10% or more of your salary to have a chance at meeting your retirement goals.

Step 2: Pick Your Investments. If you are just starting out, make it easy on yourself and enroll in the lowest-cost target date fund in your plan. That means if you are 35 and plan on retiring at 65, pick a target date fund set for 2045. These funds get more conservative as you get older, so this is the “set it and forget it” option. Are you ready to go the advanced route? Find a low-cost diversified mix of stocks and bonds consistent with your time horizon (look for terms like “global” and “index” to get the lowest-priced, best mix of assets).

Step 3: Limit Your Company Stock. As many Enron employees learned, having too much stock in one company can equal big 401(k) losses. If you do have company stock in your plan, limit it to 5% of your balance. You are already invested in your employer via your salary, so no need to double down.

Step 4: Rollover Your 401(k). Are you leaving a job or have a 401(k) with a former employer? Chances are you are paying a hefty premium for leaving the funds where they are, as 401(k) fees tend to be on the high end. Talk to a CFP® professional about rolling over a 401(k) into an IRA at another institution to save on fees and expand your investment options.

Step 5: Ignore Market Volatility. For most people, their 401(k) is going to be their largest retirement asset. Markets move up and down in the short term, so when your plan balance inevitably dips during the next downturn, do not sell. Stock ownership rewards the long-term investor, so throw blinders on during the next market downturn—you will make more money in the end.

If you have a 401(k), your employer most likely set it up quickly. This model can lead to bad plans that have exorbitant fees, which are passed on to you. If your plan seems expensive, you can ask your employer for a better one. Regulation of 401(k) plans is getting better, albeit slowly. While the industry catches up to meet the fiduciary needs of consumers, make sure you are getting everything you can out of your plan today.


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