Surely you’ve heard it said, “Work smarter, not harder.” This concept applies to most areas of life and especially to retirement. The more money you have saved up in your 401(k), the more freedom you will ultimately have to do the things you dream of in your golden years. And while large contributions from your paycheck make a huge impact on your bottom line, there are other simple strategies that can maximize your 401(k) even further when properly put into place. We list a few of these strategies for you below.
Always Match Your Employer
Employer matching (1) is a benefit included in most employer-sponsored 401(k)s. In a nutshell, this is when an employer will contribute the same amount of money as you, up to a certain amount. For example, if you are contributing 3% of your paycheck to your retirement, then your employer may contribute 100% of that same amount. In other words, this is a simple way to double your money. When it comes to free money, make sure to take advantage!
Start Earlier To Compound More
Compound interest (2) is interest accumulated from the initial principal of your portfolio combined with interest from previous periods and contributions. Therefore, the longer you can hold onto your 401(k), the more compound interest you stand to earn. So in this case, if you are a ways away from retirement, don’t wait, as it pays to start sooner than later. Start as soon as possible to activate the full potential of your compound interest.
Determine Your Level of Risk
Maximizing your 401(k) means not only growing your principal but, equally important, protecting it. Determining how far away you are from tapping into your retirement funds will help determine what level of risk you can take to grow your money in light of your ability to accommodate for that risk when it comes to downturns. For instance, if you are 30 to 40 years away from retirement, you can stand to have an aggressive level of risk by investing in high-growth stocks that can recover when given enough time should there be a downturn in the market. On the other hand, if you are about 10 to 20 years away from retirement, you may want to knock risk down a notch and look at stocks that will yield moderate growth. If you are 10 years or less away from retirement, going for conservative and safe investments is advised to minimize risk to your 401(k) funds.
As you can see, maximizing your 401(k) is not simply saving, it requires strategy. Ensuring certain strategies are in place will not only pay off in a larger principal in the long run but will relieve pressure as well. Striving for that dream retirement does not necessarily mean you have to save every single penny. Rather, it means you need to save when you can and know the tricks to make those savings work further in your benefit.
Do you have questions about saving for retirement? We at 1on1financial are happy to help you! Call our office today at 909-981-1720 or simply click here to schedule a free 15-minute introductory phone call!
About Philip
Philip A. Board MSFS, CFS, is a retirement planning specialist and the founder of 1on1financial, an independent comprehensive investment firm serving individuals and businesses throughout the United States. He is also the owner and CEO of Medi-cal Benefits.
_________
(1) https://www.investopedia.com/articles/personal-finance/112315/how-401k-matching-works.asp
(2) https://www.investopedia.com/terms/c/compoundinterest.asp