Retiring early with a lot of money to spare for the remainder of our lives is everyone’s dream. Some people opt to begin building their retirement funds on their own. However, most people put money into their 401(K) so that they can grow the money they put away for their retirement. 401(K) is good but you can definitely make it better.
Most people don’t have a traditional pension nowadays so it’s very important that you protect your 401(K) balance so that you can have a worry-free retirement. There are many things that you need to understand about your retirement savings as well if you want to help secure your future.
Maximizing your 401(K) doesn’t just mean keeping the balance untouched. It also means doing the right things to let it grow naturally. If you get a hand of these things easily, you might even be able to retire at an early age with a lot of funds to support you in the long run.
Don’t Go For Default Rates
More and more companies are automatically signing up their employees for a retirement account as part of a workplace’s benefits. At the very least, 3% of your pay is deposited into the company’s 401(K) plan. Sticking with this rate isn’t actually a good idea and it might result in smaller retirement funds.
Having 3% of your salary given to 401(K) is good for a start. However, as you rise through the ranks and you begin to get raises, you should increase your contribution by a small amount. Ideally, you should devote 20% of your salary to your 401(K) years before you retire.
Spread Your Wealth
One of the last things you’d want to do with your hard-earned money is putting it all in one investment instrument. This puts you at risk of losing everything when that one investment you make suddenly fails. Smart people will spread their wealth across various instruments.
For your 401(K), you’d want to put your money in a wide selection of stocks, commodities, and bonds. This is a good way to mitigate risks while ensuring that your money grows as properly as possible. There are quite a few upsides to spreading your wealth actually.
One is that in doing so, you can get benefits from various investment options. You’ll also be able to tap into the growth of more than one asset as well. Some companies will allow you to put your funds in a pre-made selection of investment instruments and this is a good way to diversify your funds.
Invest In The Right Annuities
Many people will tell you that it’s a bad idea to not do anything with your 401(K). As it is, you won’t have a lot of retirement funds to back you up in the future. One of the ways you can maximize your retirement is by investing in the right annuities for better growth.
Annuities are contracts that are issued or even sold by financial institutions where your funds are invested. The goal of it is to give you a fixed income that can help sustain you throughout your retirement. It’s a good way to get secured money once you retire but the problem you know you have to solve is which annuity to invest in.
There are various financial institutions that offer annuities and each has its own pros and cons. In hindsight however, you’d want annuities that help grow your 401k and this means better fixed income. Make sure to weigh all of the options presented to you before you invest in an annuity.
Avoid Anything With High Fees
There are a lot of fees that you’ll be facing when it comes to your 401(K). Even when you invest, you’re going to have to pay for the fees as well. Avoid investment options that charge high fees as these are going to impact your retirement funds big time in the end without you knowing it.
The good news is that these transaction fees are revealed to you before you make an investment. The more knowledgeable you are about these fees, the bigger savings you’ll make. It might seem small at first but when it all piles up, fees can significantly impact your retirement funds.
Consider Roth Options
More and more people are considering Roth 401(K) savings options. An advantage to this is that you don’t get a tax break on your contributions as you would with the regular 401(K). When the time comes that you withdraw your money, you won’t have to worry about taxes anymore.
This tax break can significantly affect your retirement funds. It’s not really surprising that more people want to go for Roth options instead.
Don’t Cash Out Early
If you switch jobs, it can be very tempting to take out your 401(K) and then use it some other way. However, this isn’t exactly a good idea as you’ll be facing serious penalties on your hard-earned money. Stay patient and never cash out early so that you get your money in full and then some.
In most cases, you’ll be receiving a penalty if you cash out your 401(K) before the age of 59. This is usually a 10% cash out fee which is definitely a big cut to your retirement funds. Other than that, you’ll also have to pay income tax which is another deduction on your paycheck as well.
It’s a lot better to hold your 401(K) where it’s at. Let annual interest allow your money to grow so that you don’t get to face those penalties. Of course, annual interest rates are going to help your funds grow as well. Don’t ever be tempted to cash out early.
A 401(K) is already good enough on its own but it holds so much untapped potential. You need to follow these tips to make sure that you are able to maximize what you have currently. It pays to be wise and practical when it comes to money and yes – that includes your retirement funds.
