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401(k) Investing: What You Need to Know

Three Quick Reminders for 401(k) Investing

 


A 401(k) is an excellent investment tool that many workers utilize today for their retirement. Most pension plans have been replaced, in many cases, with a 401(k). Some companies offer an employer match, which is free money to you (or a company benefit, if you prefer to look at it that way). That is why 401(k) investing can be a key part of your portfolio.

First and foremost – if your company does offer a match, it may only be a single-digit percentage. Consider taking full advantage of this, because if you’re not contributing the maximum amount, you’re leaving money on the table that could be increasing the amount you have in your account when you retire. This means that if your company matches up to five percent, you should attempt to contribute five percent of each paycheck in the company 401(k) to get the full company match.

Many people will contribute more than what the employer will match because not only will they benefit from the compound interest of the matching amount from the company, but they’ll also have extra going into it that will give them more options in what they can do in retirement.

It’s Automatic

Most employees who contribute to their 401(k) accounts don’t miss it because it’s automatically withdrawn from their paycheck and placed directly into the account. There are no checks to sign or money to withdraw; you just get your regular paycheck, and you can see your contribution in the itemized list of deductions.

Enrollment is automatic, as well, for many companies, which means there is no decision to make on your part. All you have to do is adjust how much you’ll be putting in per pay period.

Take it to the Max

A goal for your investment is to try and reach the maximum amount the IRS allows you to put in every year. (There are some circumstances where this may not be in your best interest, though, so be sure to consult an advisor.)  This number can change, but currently, you can contribute up to $18,000 of earned income per year.

If you’re 55 or older, you can contribute more – it’s called a “catch-up contribution” that allows you to contribute an extra $6,000 a year. This is an excellent option for people who’ve gotten a late start on retirement. 

Don’t Abuse the Bonus

What do you do with your tax refunds, bonuses and raises? Do you plan big nights out, trips and large purchases? If you just spent a small percentage of that money on those things and then took the rest of that extra money and put it into your 401(k), you will grow your retirement savings at a faster rate.  Let’s say you just got a five percent raise. Consider bumping up your contribution by four percent; then you may have that much extra to use in retirement.

At Family Investment Center, we’ve got many ideas to help you plan for retirement. Contact us today and schedule a visit to talk about a strategy for your investments.

The Continuing Education of an Investment Advisor
Financial Planner and National Leader Richard C. S...

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