What Should I Do with My 401k?
Without guidance, you may not be making the most of this important investment. Here are some tips about how to manage your 401k to secure your financial future. There are a couple of options here, depending on whether or not you are still working.
If You Are Still Working
Saving
Very Important! Put as much as you can into your retirement plan at work. Try for a minimum of 10% of your paycheck… 15% is better.
Payroll Deductions
One of the main advantages of a retirement plan at work is that the contributions are taken out of your paycheck before you receive it. That way, you are not tempted to spend your intended savings. The money has already been saved for you. Then, forget about it. This will make it easier to keep from thinking about these funds as an emergency source of funds. Use the money you get in your paycheck to set up your emergency account.
Investment Options
Of secondary importance… how are your funds invested? When most of us start working for a new company, we are presented with a whole lot of forms to fill out before we are “officially” an employee. Often, some of these forms will establish a retirement savings plan for us. We are often asked to determine how our contributions should be invested. With so many things to think about on our first day, we may elect to invest in cash, or perhaps a series of mutual funds that may not be appropriate for our personal situation. Make it a point to carefully examine how your contributions are being invested. If you are uncomfortable about making the correct choices, seek professional help.
If You Are No Longer Working
Individual Retirement Account (IRA)
If you have a 401(k) but are no longer working, you have the ability to transfer the funds from your 401(k) Plan at your previous employers to your own Individual Retirement Account (IRA). There are several advantages to doing this, but the most important are costs and security selection.
Fund Expenses
Most employee retirement plans offer a limited selection of funds that are available. Many times, these funds carry with them high expenses. Whether the funds increase, or decrease in value throughout the year, the annual expenses, usually a fixed percentage of the amount invested, present a “drag” on the fund’s return. This reduces the amount that you are able to save.
Independent Financial Advisor
When you establish your own Individual Retirement Account with an independent Financial Advisor, you will have the option of selecting from thousands of securities, and many of those may have expenses considerable lower than those in your employer’s retirement account. Your Financial Advisor will work with you in building a portfolio of securities that is appropriate for your risk appetite, your financial goals, your age and your financial situation.