Ensure Your 401(k) Is on the Right Path for Retirement
While a 401(k) requires minimal upkeep, reviewing it once or twice yearly is crucial.
You’ve arranged physicals for yourself and your family, along with various health screenings. But have you thought about your 401(k)?
It deserves attention too. Although a 401(k) is relatively low-maintenance, it’s still wise to assess it periodically.
First things first: log into your 401(k) account or grab your latest statement. Ready? Let’s go!
DON’T PANIC ABOUT YOUR RETURNS
If you aren’t keeping an eye on the stock market, your latest 401(k) statement might bring unwelcome news. Overall market performance has been stable, but individual sectors may vary, especially if inflation persists or a recession occurs. Remember, if you’re investing for the long haul (five years or more), short-term fluctuations shouldn’t cause concern.
Now’s an excellent time to review your investment allocation to ensure it aligns with your objectives. If a declining balance worries you, consider reducing your stock investments. “Your risk exposure should match your age and goals,” advises a financial expert. “As you get older, aim to lower your risk, while younger individuals can afford to take more risks.”
BOOST YOUR CONTRIBUTIONS
Strive to save at least 15% of your income for retirement, including any employer matches. If you’re not there yet, that’s okay. Many people are just starting to recover from pandemic-related setbacks.
With rising salaries as a silver lining to inflation, if you received a raise, fantastic! You can increase your contributions without straining your budget. Some employers automatically adjust this for you, but it’s worth checking if you can boost your contributions even more. “If you receive a 2.8 or 3.5% raise, consider directing 1% to your 401(k) while keeping the rest,” suggests a financial strategist. “This approach helps you achieve both immediate income and savings goals.”
If you didn’t receive a raise, see if you can still increase your contribution by at least 1%. Ask your employer about annual increases until you reach the maximum contribution. If you don’t miss the 1%, consider upping it again in a month.
Also, if you maxed out your contributions last year (kudos!), you might be eligible to save even more this year. The IRS raised the contribution limit by $2,000 for 2023, allowing you to contribute up to $22,500 tax-free. For those aged 50 and older, there's an additional $7,500 allowed.
SEEK PROFESSIONAL ADVICE
Unsure if your investment choices are on track? You may be able to find free assistance. Many plan sponsors now offer investment guidance to participants.
Look for online tools and resources on the portal where you manage your retirement funds. “I encourage everyone to ask questions and take charge of understanding their investments,” says a financial planner.
CHECK ON OLD 401(K) ACCOUNTS
Your current 401(k) isn’t the only account to review. If you have old 401(k) accounts from past jobs, take time to ensure those investments still fit your comfort level.
Think about consolidating multiple accounts for easier management and to minimize the risk of losing track of them. Instead of cashing out, consider rolling them into your current 401(k) or an IRA if you’re satisfied with your investment options.