The start of a new year is a great time to tackle important financial matters. And there’s perhaps nothing more important than checking up on your retirement plan.
If you have a 401(k) plan through your job, now’s your opportunity to make sure you’re making the most of it. Here are some moves to tackle along these lines.
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1. Make sure you’re signed up for a large-enough contribution to claim your full employer match
Many companies that offer 401(k) plans also match worker contributions to some degree. Your employer’s matching policy might change from one year to the next, so now’s the time to learn what that match entails and what you have to do to get it.
It may be that your employer will match 100% of your contributions for up to 5% of your salary. Or maybe your employer offers a flat $3,000 match, where if you put in that much money, you’ll get a free $3,000 for retirement, regardless of how much you earn.
Figure out what you need to do to snag your match in full. If you don’t, you’ll be giving up free money for your nest egg. And that could leave you with a shortfall later in life, especially when you consider that you’re not just giving up that money itself, but also potential gains on those employer-matching dollars.
2. Make sure you’re invested appropriately for your age
You may be hesitant to take on risk in your 401(k) for fear of seeing your account balance drop. But if you’re decades away from retirement, it’s important to take on some degree of risk so your money can grow at a decent pace.
However, if you’re nearing the tail end of your career and have your 401(k) invested quite aggressively, it may be time to shift toward more conservative assets. You don’t want to risk seeing your plan value plummet a year or two before you’re set to leave the workforce. If that happens, you may end up having to delay retirement.
3. Make sure you’re not losing too much money to fees
One downside of investing in a 401(k) is that you generally can’t build a portfolio of individual stocks. Rather, you’re usually limited to a bunch of different funds, from target-date funds to index funds to mutual funds.
It’s important to see what fees you’re paying on the funds in which you’re invested (these are called expense ratios). You’ll usually pay a lot more in fees to keep money in an actively managed mutual fund than you will in an index fund. So if you’re losing a lot of money to fees, you may want to make some changes to your 401(k).
Don’t assume that you’ll lose out on higher returns by moving over to low-cost index funds. These types of funds often perform comparably to their actively managed counterparts. And frequently, they do better.
Managing your 401(k) plan well could set you up for a comfortable, secure retirement. Make these moves at the start of the year before other financial matters pop up and start taking priority.
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