7 steps toward making the most of your 401(k)
See how your habits stack up and what you could be doing better
Is the retirement you want within reach? Participating in a 401(k) or other retirement plan is a great step – one that almost two-thirds of Americans take. But do your 401(k) habits stack up?
Here are seven ways you may be winning at retirement planning – or seven ways to improve:
Save more than 6 percent
Owning a 401(k) allows you to magically harness compound growth tax-free. You contribute pretax money, lowering your income taxes. Your savings then grow tax-free. A little more saving now makes your nest egg a lot bigger later via compound interest. According to Vanguard, half of retirement plan participants saved over 6 percent of income last year. Half saved less. Be better than average.
Avoid loans and distributions
Though commonly used, 401(k) loans cost extra in taxes and fees. Loans also likely rob you of good investment returns. So can tapping your 401(k) for unexpected expenses, something 17 percent of baby boomers admitted doing in a 2015 survey. Avoiding loans and early distributions gets you more compound growth, a huge win.
Ask for advice or support
According to Bankrate, 26 percent of Americans get retirement advice from an investment professional. Almost as many tap family and friends. Others use on- line calculators or commentary from articles like you’re doing right here. Yet 46 percent didn’t seek any advice. So if you’ve sought help, you’re a step ahead.
Max out contributions
Last year, only 13 percent of Vanguard’s retirement plan participants maxed out their 401(k) contributions. Maxing is tougher for lower-income folks, with only 3 percent of workers earning between $50,000 and $75,000 doing it. Yet even among folks making six figures, less than half contributed the maximum (in
2018 that’s $18,500 for folks younger than 50 and
$24,500 for those older). Take some tips from “super savers” by reading this: www.fisher401k.com / news/blog/going-for-retirement-gold
Use a retirement calculator
Mapping your financial future can be intimidating – full of guesses. How much income will you need down the road? What must you save now to get that retirement you dream of ?
Online calculators aren’t flawless. But they can help. Enter your age, salary and current savings. Then see how different savings rates and retirement spending projections affect your readiness. Find a free calculator through a quick internet search. Or try my firm’s:
www.fisher401k.com/resource-library/tools/
calculator-K01177M
Make the most of employer match
Many employers partially match their employees’ retirement contributions, juicing folks’ savings. But not everyone takes full advantage. A recent report from Financial Engines shows one-fourth of workers don’t contribute enough to their 401(k) to get their employer’s full match. You could be missing a lot. Vanguard reports the average potential employer match is about 4.2 percent of total pay. Don’t let this free money slip away.
Complete a financial plan
Can you aim without a target? Or get directions without knowing your destination? Of course not! Ditto with retirement saving. A clear strategy is key to staying on track to reach your goals. Yet only 1 in 4 people has a written financial plan. Getting one is an easy way to get ahead.
Retirement planning is a long process with a delayed benefit. So – please – celebrate every win along the way. Recognize your successes. Seize every chance you see to further your future.
Ken Fisher is the founder and executive chairman of Fisher Investments; author of 11 books, four of which were “New York Times” best-sellers; and is No. 200 on the Forbes 400 list of richest Americans. Follow him on Twitter @KennethLFisher. The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.