Summer is officially here! For many of us, this is a time to relax, enjoy the sunshine and maybe spend a few days at the beach. And if you're like me, the onset of beach season means it's time to make healthier choices and get back into shape.
While you're focused on getting physically fit, don't forget to flex some financial muscle, too. Since a 401(k) plan is often the only or primary source of retirement income for many of us, it definitely deserves some extra attention. In fact, a recent Schwab survey* found that more people would rather see their 401(k) go up by 15 percent than lose 15 pounds!
So, here are my top tips for making sure your 401(k) is in tip-top condition:
You Get What You Give
Just like a spotter at the gym, your employer is most likely lending some saving support. One of the most important things you can do as a 401(k) saver is contribute at least enough to get any employer matching contributions in full. That's because the match is like an automatic investment return you can't get anywhere else. This should be your number one financial priority, even ahead of paying off credit card debt or saving for a house.
Pump It Up
While contributing enough to get the full match is a great starting point, it's probably still not enough to help you save as much as you'll need for a comfortable retirement. Try to pump up your contribution by a percentage or two each year until you've reached the level that's optimal level for your unique situation and goals. Any time you get a pay raise, consider increasing your contribution rate, too.
Bring in a "Coach"
You'd probably be more confident in your workout if you had help from a personal trainer, and the same principle applies to 401(k) investing. About three-quarters of the respondents in the aforementioned survey said they would be very or extremely confident in their ability to make the right investment decisions with the help of a financial professional, versus only 44 percent who would feel that same level of confidence on their own. Many 401(k) plans offer some type of professional advice. If your plan does, consider taking advantage of it.
There are some pretty hefty benefits associated with professional 401(k) advice. Research from Morningstar Associates, LLC** suggests that participants receiving advice as part of a managed account service could end up with nearly 40 percent more income in retirement.
Cut Out the Fat
Don't just count calories. Take a close look at the individual funds in your portfolio with an eye towards the fees you're paying. Make a special note of any low-cost index mutual funds or exchange-traded funds on your plan's menu. These kinds of funds often have lower investment management fees, so investing in them can mean putting less of your savings toward fees and putting more into your account.
Maintain a Balanced Diet
This year has been quite a volatile one for the stock market. Swings in the markets may skew your 401(k) asset allocations if, for example, stocks either underperform or outperform bonds and other kinds of investments in your portfolio. Evaluate your portfolio to ensure you have the right mix of assets to give yourself the balance of potential growth and risk appropriate to your situation. If you are working with a "coach" like the one I mentioned earlier, they can help you with this, too.
In retirement planning just as in working out, there's no perfect formula and no two situations are alike. However, if you follow these tips, this summer could see your 401(k) in its best shape ever.
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*2015 401(k) Participant Survey conducted by Koski Research for Schwab Retirement Plan Services, Inc. Koski Research is not affiliated with Schwab Retirement Plan Services, Inc.
**This figure represents the potential wealth increase an average 25-year-old could have at retirement when using a managed accounts service versus an average 25-year-old that did not use a managed accounts service. The analysis is based on 58,444 participants who used the Morningstar® Retirement ManagerSM service between the dates of January 2006 and February 2014.
Morningstar Associates, LLC is not affiliated with Schwab Retirement Plan Services, Inc.
The employer contribution is paid on a pre-tax basis and may be taxable at withdrawal.
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