Whether it's the first time you work for an employer sponsoring a retirement plan, or if you've landed a different job, accessing a 401 (k) means you have a solid opportunity to save money for your golden years. That said, you should make some important decisions regarding that account, and here are three big ones that you should consider.
1. How much of my salary should I contribute?
For the current year, you can contribute up to $ 19,000 to your 401 (k) if you are under 50, or up to $ 25,000 if you are 50 or older. However, most people can not get rid of so much money, so if you are one of them, do not worry. What you should However, what you should do is to draw up a budget and calculate how much of your salary a part can pay. If you guess that number, it is possible that you over-fund your account and start falling behind with your bills (although the good thing about 401 (k) is that you can usually change the amount of your contribution easily, you may only need a couple of payments). cycles to go through). But he does not want to contribute very little either, because if he does, he runs the risk of falling short of funds in the future.
One thing to keep in mind when making this particular decision is the matching policy of your company. Many employers match 401 (k) contributions made by employees in varying degrees, and that is something you want to capitalize on, as it is effectively free money. Therefore, see how much you will need to put in your 401 (k) to get your complete game and aim to achieve that goal. For example, if your employer will match up to 3% of your salary and you earn $ 50,000, be sure to contribute a minimum of $ 1,500 to your 401 (k).
2. How should I invest my money?
The money in your 401 (k) should not just sit there without doing anything; You will have the task of investing it so that it grows. Generally, you can not buy individual stocks and bonds with a 401 (k). Rather, you will have to put your money in stocks or bonds. money They are generally divided into two categories: actively managed mutual funds and index funds.
The benefit of actively managed funds is that they can capitalize on the experience of the people who administer them. However, you will pay higher investment rates to get a share of that action. Index funds, on the other hand, simply track existing market indices and are managed passively. As such, their rates are much lower. This does not mean that actively managed mutual funds do not have a place in their 401 (k). Just make sure you know the rates involved.
Also, make sure that the funds you choose are aligned with your investment strategy and your appetite for risk. If you accumulate too many bond funds, you will generally limit your returns. The result? Less money for you in retirement. Stock-based funds are generally more volatile, but generally offer higher returns, so you should consider these factors when setting up your portfolio.
3. How often should I check my balance?
You may be tempted to check your 401 (k) frequently. After all, the money in that account is your hard earned money (plus the funds your employer contributes), and you want to make sure it is growing. But remember, saving for retirement is a decades-long process, and if you check your account balance on a weekly basis, it is very likely that you will end up going crazy. If the market has a couple of difficult days, you could see how your account balance will fall overnight, but that loss is likely to be only temporary.
Having said that, is It is a good idea to periodically check your investments in the 401 (k) plan to make sure they perform as expected and meet your needs. Therefore, you may want to make a calendar note to review your 401 (k) quarterly or semi-annually.
The right 401 (k) decisions will help you get the most out of your retirement plan. And you know what that means: more money for you when your golden years end up spinning.