Confused by the volume of 401k plan advice available? If so, here are a few pointers to consider:
Without a doubt, enrolling in your company’s 401(k) plan can be intimidating, as there are some quick decisions to make. For example, you may be wondering “How much should I contribute from each paycheck?” and “Which investments are the best?”
Contributing to the stress, there is often a lot of documentation to weed through to get everything set up. The good news, though, is that once you have enrolled and begin contributing to the plan, things will go a lot more smoothly and you’ll look forward to periodic statements showing you how quickly your retirement nest egg is growing.
In the meantime, you’ll want to focus on a few key issues:
- How much should I contribute to my 401(k)?
The simplest answer is: as much as possible! However, first consider how much you require for living expenses carefully and be sure to take home enough of your paycheck to meet your everyday needs.If your employer offers a “match” – an amount that is put in to your account to match a percentage of your contribution – make every effort to put in as much as your employer will match. After all – it’s “free money!”
. - Which investment option should I choose?
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Don’t be embarrassed to ask your human resources department for some help. They may recommend that you contact the investment manager that advises your 401(k) options, but good information is available either way. In general, if you don’t expect to retire for many years, equity investments such as common stock mutual funds offer the greatest long term potential.
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.Increasingly popular 401(k) options are “target” funds, which continuously invest your funds with an eye towards your expected retirement date. If you don’t have any appetite for investment risk, your plan will offer a very conservative money market or fixed interest option as well.
. - Is my money locked up until I retire?
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You should initiate your 401(k) investment with the goal of building a substantial nest egg to assist you through your retirement. However, your plan probably permits access to your funds in certain cases of financial “hardship.” As you begin to contribute to your plan, it would be a good idea to ask about the circumstances in which you can withdraw funds. Remember that even if your employer allows access to your funds, an early withdrawal will always result in certain tax obligations and penalties.
Regardless of which 401k plan advice you choose to follow – the key is to start your participation with the appropriate goal in mind: your long-term financial security.
This article is for entertainment purposes only. No retirement products or services are being offered or recommended. Before making any financial decision, be sure to consult with a licensed professional authorized to conduct business in your geographic area. .
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