Tips to handle your 401K as an expert
This is what you should know to manage your retirement plan. Learn how to efficiently manage your 401K plan, and get the most out of your retirement years.
Managing a retirement plan is more an art than a science. Although it may seem complex, with some skill you will save enough for your retirement. Check out these keys from the experts and learn how to manage your 401K plan.
What is the 401 (K)?
This retirement plan is a similar benefit to health insurance offered by your employer to help you reach your financial goals and prepare for retirement. It’s an easy way to save for your future and provide financial security for your family, explained Willa Martinez, participant experience consultant, at financial services company Wells Fargo.
How does it work?
When deciding on a 401 (K) plan, you will make monthly contributions, which will be deducted automatically from your salary. The money will then be invested in one or more funds.
The contributions that are invested in this plan are exempt from paying federal taxes, until the time the money is withdrawn.
If for some reason you decide to leave your job, what you have saved will remain yours. Your alternatives? Leave the money where it is, transfer the amount to another retirement account or withdraw it, the specialist explained.
Keys to managing your plan
Do you want to manage your 401K plan as an expert?
1. Make sure you get the maximum contribution from your employer. In general, it will make a contribution equivalent to yours, up to a certain amount.
2. Establish a goal of saving at least 10% of your salary per month.
3. Constantly save. US workers aged 40 or older have managed to accumulate $ 100,000 more than those who had other behavior.
4. Do not touch your savings. It can be tempting to spend them if you change jobs or something unexpected happens. However, early withdrawal of money could be a major obstacle to achieving your retirement goals.
5. Start early. When it comes to planning your retirement, it’s worth not postponing things. Take advantage of the years, and let your savings grow.
6. Save the same as your employer, but no more. Usually, if you allocate 5% of your salary to the plan, the company will match your contribution. Thus, you will specify the goal of allocating at least 10% of your monthly income to your 401K plan, suggested Ara Bayindiryan, instructor at Online Trading Academy.
7. Place most of your assets in a diversified capital investment fund. It’s ideal when you still have many years left (10 or more) to retire, said Robert R. Johnson, CEO of the American College of Financial Services. You could get a 10% compound annual return, against the 6% offered by government and corporate bonds.
8. Make your investments of 401K in stocks, if you still need to retire. But if you approach your “red zone” (less than 10 years for retirement), consider a less volatile destination for your assets, such as government bonds.