The 401(k) has become a staple of American retirement planning. It’s estimated that more than half of all American workers have access to a 401(k), and the numbers are growing yearly. Even though the 401(k) is so popular, managing it effectively can be challenging–especially if you’re just starting.
Managing a 401(k) can be a stressful endeavor. With so many options, it’s easy to get overwhelmed. With the right tools and resources (and some patience), you can maximize your savings for retirement success. Here are a few tips for managing your 401(k).
Know Your Account
How much money is in your 401K account, and how much you’ve invested over the past few years? This information can be found by logging into your account and checking the “Balances” tab. A good place for tracking this data would be under “Transactions” on each contributor’s page within their enrollment portal.
Budget And Pay Down Debt
A budget is one of the most important things you can do to manage your money. Make sure that debt payments are made on time and track where every dollar goes. If you have used up all your savings for retirement, then it’s time to be smart about managing everything else in your life.
The best way to avoid temptation is to automate your savings. Set up an automatic transfer from your checking account into a separate savings account, then use the money for 401(k) contributions. Alternatively, if you already have an employer-sponsored plan and want to increase contributions without changing jobs, speak with your HR department about setting up an automatic deposit into your 401(k).
If your employer offers a range of investment options for your 401k account, consider diversifying into low-cost index funds to gain exposure to different asset classes, such as stocks and bonds. These funds offer broad exposure to different investments at lower costs than actively managed funds. They can help reduce risk over time by reducing exposure to specific market segments that may not perform well following periods of volatility or downturns in investor sentiment (such as U.S.-based stocks during an emerging market crisis).
Request A Match
If you have access to a matching 401(k) plan, you should take advantage of it. An employer may match 50% of the first 6% of your salary that you invest in the plan. Some employers require employees to invest 8% before their contributions kick in.
Contribute At Least 15%
You must contribute at least 15% of your 401(k) income. This is the minimum amount needed to get the full company match from employers. If you’re in a high tax bracket, you should aim to contribute more than 15%.
On the other hand, if you’re in a low tax bracket, think about contributing less than the required minimum. If you can afford to make additional contributions beyond this amount—even if only small amounts—do so!
Avoid Early Withdrawals
Think twice the next time you are tempted to tap your 401K. You may not be able to replace the money as easily as you feel, so it’s best to stick with your plan and leave it alone until retirement!
You will also lose out on the compounding effect of your money over time and pay taxes on the withdrawal. There are penalties that apply when making early withdrawals.
We hope this article has been helpful. It can be stressful to manage a 401(k), but we want you to know that it’s not impossible, and there are many resources out there to help you along the way. One of the most important things is knowing what your account looks like and being able to set goals for yourself so that you have a clear path toward retirement success.