It’s 401(k) seasonSubmitted by Financial Planning Solutions, LLC on November 1st, 2018
It’s benefits season. The time of year when employees have to decide which health plan to select, which investments to select for your 401(k), and how much to put into your flexible spending plan. The number of options and complexity of all the different benefit options can be dizzying to many employees.
During an employee education meeting that I attended today I had one new participant say to me, “I just want to set it and forget it.” I think this captures how many of us feel about the benefits enrollment period. We all want the best options but would really rather not have to read through all the materials and try to understand each option.
We know it’s important but, let’s face it, it can be a little--or a lot--dry.
As someone who talks with employees all the time about 401(k) plans I know that it’s not easy. And, I know that many employees have other things on their minds, especially when we start talking about money: Making rent or a mortgage payment, paying student loans that are as big as a mortgage payment, paying home care expenses for a loved one, and the list goes on. There can be a lot of financial worries.
When it comes to saving for retirement, here are my quick tips enrolling in your 401(k)/403(b):
Give yourself a raise – Even if you are getting a small raise this year, use this opportunity to increase your 401(k) salary deferral by at least 1% of your pay. When your paycheck gets larger, it’s easier to give your 401(k) a raise at the same time. You’ll probably not notice the difference in your paycheck. Most of us will need to save at least 10% of our income throughout our working careers in order to have enough.
Keep it simple – Unless your hobby is researching your investments in your spare time, make your investment selections easy to track. Many retirement plans now offer target date retirement funds that are designed to be a one-fund solution. All you need to do is figure out what year you’ll turn 65 or 70 and then select that target date fund. The investment manager will take care of deciding how much to invest in stocks, bonds and cash.
Play the long game – Monitoring the daily or monthly movements of your investments can be stressful. Some of my most concerned clients are ones that are checking their account balances every few weeks. This can be hard on them as they watch their balances rise and fall with the short term movements of the markets. My advice?--Forget about it. Once you have figured out how much to put in and what to invest in, leave it alone until next year.
Only invest money that you are not going to need right away – If you have no cash to make an emergency home repair or fix your car when it unexpectedly breaks down, don’t put all your extra money into your 401(k). Put money into an emergency fund first (a minimum of 3 month’s expenses is a minimum goal) and then begin your long term retirement savings plan.
Ask for help – Your 401(k) should offer access to a recordkeeper or financial adviser that can answer questions about your plan and its investments. While they generally cannot provide you with detailed financial plans for your particular situation, they can answer many questions about saving for retirement and help you get on the right track.
There are a number of other things to consider when signing up or reviewing your retirement plan at work, but these tips are a good start.
More questions about your 401(k) or 403(b) at work? Give us a call; we’re here to help.
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.