Set Your 401k on Fire: Easy Tips to End Up with More

Its that time again, that time of year when you are getting ready to or you have already filed your income taxes. Right about now is when many people pull out their 401k statements and sigh in despair. The balance looks dismally small and in some cases may be even lower than it was just a few short years ago. Yet even so, you need to take a look at the reality of your future retirement.

Only You Can Make Your Best Retirement Plan

In an era when even Social Security payments are being cut and when the retirement age is being pushed back further and further, can there be any doubt that you need to stand up and take charge of your own retirement? Not only that, you must have noticed that for the most part corporate pension plans have gone bye-bye. Even with workers who thought they were safe with a union pension plan are getting slapped upside the head. Take American Airlines, for example. As you may or may not know, American Airlines was a profitable airline for years and was largely unionized with pension plans for all of its union members.

Ooops, Not so Much

Well, until they filed bankruptcy that is. Then all the current and former employees received a rather curt letter in the mail. Dear employee, we regret to inform you that you are screwed, we have stopped contributing to your pension plan.

What about the Government Pensions?

Yeah, sure. It is true that this is one sector of the economy that always seems to have at least some sort of pension plan in place. But for how long? Also, as you have read in the papers some municipalities are fighting back against their unionized employees and their benefit plans.

Do You Want to be a Walmart Greeter When You Are 70?

Nothing against Walmart nor the friendly greeting staff, but the point is that after a lifetime of working hard, many people expect something better in their so-called golden years. And, as you have already figured out, now is the time to do something about it.

Your Smart and Easy Action Plan

1. If your employer matches your contributions, do whatever it takes to contribute at least that amount. Think about it this way. A matching contribution is like free money in the bank. Now you add in the long term investment earnings from the combination of your personal contribution and your employer’s match. You can see this is an easy way to come out ahead of the game.

2. Don’t just settle for the minimum. Match or no match, you want to be putting as much as possible aside for your retirement. As you probably know, you can contribute up to 20% of your pretax income directly into your 401k account. You will be thousands if not hundreds of thousands of dollars ahead of your peers at retirement if you can put aside the maximum amount.

Even if you can’t contribute the maximum amount right now, make that one of your goals. One easy strategy is to simply put aside another 1% or so each and every time you get a raise. Before you know it you will be contributing the maximum amount.

3. Understand the timing. You need to realize that funding your retirement is a marathon and not a sprint. That means you want to have the mindset that you are in for the long haul. Some investment advisors even make the case that you should only check your 401k statements once or twice a year and then only to evaluate if you should make alternative investment choices.

4. Stay until you’re vested if at all possible. You may have skipped over the fine print when you signed up for the company’s 401k plan. Here’s the part you might have missed. Many companys have a vesting schedule for the matching contributions. Oftentimes, it works out to be some sort of sliding scale. For example, if you leave after 5 years, you get to keep 100% of the matching contributions. If you leave after 5 months, you get to keep none of the matching contributions.

5. Just say no to cash outs. The fastest and easiest way to torpedo your 401k retirement savings is to cash out before its time. Yes, there are ways to cash out for medical emergencies and the like. But still, understand this. You will pay, and you will pay big time. There is a hefty 10% early withdrawal fee if you pull out before you are 59 1/2 years old. Plus, you are whacked with an additional tax bill against all of the money you just pulled out.

Bottom line? Only you can make the most of your 401k plan. Follow the simple tips above and you will be in a much better position when you retire.

Now it’s your turn? What do you think about these methods?


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