Easy Ways To Leverage Your Company’s 401(k) Plan

The days of traditional pensions are behind us. Nowadays, a secure retirement plan means growing and protecting your 401(k) balance. However, many people simply accept the default savings rate, which is most often 3% of their salary. While this is certainly better than no savings at all, it’s typically not enough to sustain your current lifestyle once retired. With most companies offering 401(k) match, there’s no reason not to boost your 401(k) balance. Beyond that, there are easy additional ways to leverage your company’s 401(k) plan. Here are a few of them:

Auto Enroll and Save Up To and Beyond the Match

Safeguard your financial future by opting into your company’s 401(k) plan. This feature has become so popular in the past 15 years that it’s grown by more than 300% since 2007. That’s because it’s the easiest way to save for retirement. Most employers now include a 401(k) match as well. So if you’re not familiar with the features of your company’s 401(k) plan, now’s the time to check. Most will match contributions up to 6% of your paycheck. This is great and all, but you’d be doing yourself a disservice by not contributing beyond that percentage.

Once you’ve reached your maximum match in your 401(k), you may look into other options like an IRA. But if you don’t qualify or want to invest your money pre-tax, you should keep pumping your 401(k). As of 2021, you can contribute up to $19,500 to your 401(k). If you’re 50 and older, that amount goes up to $26,000. That, of course, is a lot of money to put aside for retirement, so you should calculate how much you’ll want to have when you retire. That number will look different for everyone. You’ll want to consider what age you want to retire as well. Most experts will probably tell you that you should save 10 – 15% of your income, but you don’t have to start there if you’re unable to. That brings us to our next point.

Auto Increase Set to Default

Auto increase, also known as automatic escalation, is a 401(k) plan feature that automatically increases your contribution amount each year. Most employers will set this feature up so you can increase your contributions by 1% all the way up 15% per year. This is a great way to save more money every year without even noticing it’s happening. By opting into auto-escalation, you can increase the likelihood of being retirement-ready.

A Good Allocation Strategy

As you might already know, a sound investment strategy involves diversifying your assets. That can be across bonds, stocks, commodities, and others. This will protect your balance against the downturn of an asset class. For long-term investing like a 401(k), you’ll want to avoid timing the market or trading too often. You also might want to say no to company stock because this can narrow your 401(k) portfolio. Some experts recommend investing no more than 10% of your portfolio in company stocks.

You’ll also want to look out for high funds that charge high fees. These management fees and sales charges can really add up if they charge high percentages. Look for funds that charge less than 1% if you can. Basically, you’ll want to avoid actively managed funds and invest in low-fee index funds. These funds will invest in stock indexes like the S&P 500 and the Russell 2000 and should cost no more than 0.25% in annual fees.

After you have your strategy in place, you’ll want to review your asset location annually to ensure your strategy is on track. Any more than that, you’ll be micromanaging, which you want to avoid.

Leverage Your Company’s 401(k) – The Bottom Line

Take advantage of your company’s 401(k) plan. You don’t want to rely on social security, which has steadily declined to the point that it’s unlikely that you will receive regular income when you retire. Instead, save beyond the match in your 401(k), automatically increase your contribution amount, and stick to your allocation strategy. If you need help annually reviewing your allocation strategy, contact IronOak Wealth LLC today. We’d be happy to help.

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