How confident do you feel about your plan for retirement? If you’re lucky, you may be feeling very optimistic. But if you’re like 80 percent of Americans, you might be worried that you won’t be able to cover your regular expenses when you need to stop working.
If your company sponsors a 401(k) retirement fund, you are in a fortunate position. With a few small changes to your strategy, you can maximize your retirement income and put yourself in a better financial position in the future.
Determine your needs. Most people aren’t even sure how much they need to save for retirement! So before you start worrying about it, meet with your financial advisor to discuss your goals. He or she can help you to establish a savings objective. Now you just have to utilize your 401(k) to get there!
Take advantage of your full employer match. If your employer offers matching retirement funds, why wouldn’t you claim that money? Contribute at least the amount of your employer match to your 401(k) fund each year.
Save more after you reach age 50. You may have now reached the earnings peak in your career, so this is the ideal time to stash extra money for retirement. Once you reach age 50, your contribution limits change. You can now save an extra $6,000 per year in your retirement account. Considering the impact of compounding interest, that will add up to quite a chunk of change over the next decade or so.
Examine your expense ratios. With a 401(k), you get to decide how your money is invested. But when you make your fund selections, carefully examine the fund fees. In many cases it is not prudent to pay high fund fees unless you are absolutely sure you will stick with that fund for the long haul. Remember that index funds generally carry comparatively low fees. They may be worth consideration as part of your portfolio.
Never take early withdrawals. You might think that you can just pay yourself back, but you’re forgetting something important. Your 401(k) fund will lose not only the money you withdraw, but years’ worth of compounding interest on that money. You may also face a stiff penalty. It’s almost never a good idea to withdraw money from your retirement fund before you actually retire.
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