Don't Ignore Your 401(k) - Maximize Your Benefits Now!

Mid-year is a good time to review your 401(k). You still have time to adjust your 2015 contribution amount and change any investments.  Don’t ignore your most important retirement asset.

To have financial security in retirement, you need to plan appropriately to ensure you will not run out of money.  That means taking advantage of retirement savings vehicles such as the 401(k) or 403(b) that is provided by your employer.  Take the time now to review your retirement plan while you still have time to maximize its benefits for 2015. 

Check Your Contribution Level

Review your paycheck to determine the amount that you are on track to contribute during this calendar year. If it is less than the maximum contribution allowed in 2015 of $18,000, you should consider increasing your contribution for your remaining paychecks to accumulate the full amount by year-end. If you are 50 or older, you can add an additional $6,000 to the plan as the “catch-up” amount.  Checking is important even if you are sure you contributed the maximum last year. This year the maximum has increased $500 if you are under age 50 and a total of $1,000 if you are 50 or older.

If you are not contributing the maximum, consider increasing your contribution by any amount that your cash flow allows.  If you are not currently participating in your employer provided retirement plan, we strongly encourage you to do so.  

Start contributing any amount that you can, but do at least the amount that your employer is matching.  A typical match is 50 cents for every dollar contributed up to 6% of pay.  This is a free 3% of your salary that is added to your retirement plan just for saving! You direct the investment of the funds among the vehicles offered by the plan.  And, no income tax is paid on your contributions, the employer matching funds, or your investment earnings until you withdraw the funds to spend during your retirement years.

Check the Asset Allocation

With your June 30 statement, review the amount that you have invested in money market, stock, bond, and other types of mutual funds.  You need to review your mix to ensure it is appropriate given your plans for utilizing the funds.   

If you are young and just beginning your career, your retirement horizon is likely to be thirty years or more in the future.  Being aggressive and investing a significant portion in the stock market can be appropriate. You have time on your side and can wait through the down cycle of the stock market without being required to sell your stock investments at depressed values.  

Check the performance of each mutual fund you have selected against others offered in the plan.  It is not advisable to compare investment returns over the last quarter or even the last year.  Five- and ten-year returns will provide a better long-term perspective for judging as well as selecting your investment vehicles.  It is also important to be diversified by investing in multiple market sectors.  

Easier Option

Some employer retirement plans have started including “target date” mutual funds as investment selections.  With these mutual funds, the title of the fund will indicate a target retirement date, such as 2020, 2025, or 2040.  These funds are designed to have the appropriate asset allocation and diversification for someone who plans to retire in the year specified. The asset allocation is automatically adjusted as the retirement date for the fund gets nearer.  

Summary

Getting the most value from your retirement plan requires your diligent review and nurturing. If you have other investments besides your 401(k) or 403(b), you should review your combined portfolios to ensure that the overall allocation and level of diversification is appropriate for you. No time and no interest, then get the advice of a qualified financial advisor.  This is too important to ignore!

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