Between 2019 and 2020, there were nearly 3.5 million more retirees in the United States. Safe to say, more and more Americans are looking to retire as we go into the future.
One of the most prevalent retirement vehicles is the 401k, and chances are you contribute to one or are looking to do so. But what goes into contributing to a 401k? What are some ways you can maximize your savings?
That’s what we’re here to look at today. Read on to find out the best 401k strategies!
Things to Consider Before Investing
To come up with a solid 401k strategy, you need to know what you should look at before you get the ball rolling. You don’t even have to pick a single fund to put your money in.
By divvying up your money, a practice called asset allocation, you can maximize your funds. But always be aware of the risk. If something seems too risky, it might be better to play it safe.
Your age is another factor to consider. The younger you are, the safer it is to invest in funds, as your losses will be smaller if it falls through. As such, investing about 10% of current income is the way to go.
In terms of total retirement sum, you should have enough saved up from your retirement funds and other assets to replace about 80% of your income before retiring. Always consider this amount as you’re nearing retirement.
Watching Out for High Fees
Something to consider for your 401k strategy is to avoid any investment with high fees. These fees usually come out of your investment returns.
It’s impossible to avoid all fees associated with your 401k plan. That said, avoiding ones with large management fees and sales charges is crucial.
Understanding How Much to Invest
It might not be enticing to invest in a 401k from the outset, but doing so is still a good move. Try contributing the minimum amount to start, as that can qualify you for a full match from your employer.
As time goes on, you might want to increase the amount you contribute. You can also contribute to your company’s 401k plan to reduce your marginal tax rate. Your tax rate might drop when you reach retirement.
After the Plan is Set
Once your portfolio is all set to go, make sure you keep an eye on its performance. Most importantly, keep your hands off the funds.
It might be tempting to pull some cash from your 401k before retirement but fight that urge. If you find yourself wanting to pull money from her 401k, that’s indicative of other financial issues.
Furthermore, you may need to know how to roll over your 401k. Check out the following link if you aren’t sure what the difference is between a transfer versus rollover.
Understanding 401k Strategies
Starting a 401k can seem daunting, but all you need is a solid strategy. Use this guide to help you understand what these 401k strategies might be and how they can help you in the long run.
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