Workplace retirement plans are the most popular way for Americans to save for retirement. But that doesn’t mean employees are getting the most out of their plans. We review five ways to ensure you maximize your benefits.
1. Take the free money
Many companies offer to match a percentage of what employees contribute to their workplace plan. Some experts describe this perk as free money. Others say that it’s a part of your compensation that you’re entitled to. Either way, you can only claim it if you contribute your own funds to the retirement plan.
At a minimum, try to contribute at least enough to your workplace plan to take full advantage of your employer match. Be sure to look into any vesting restrictions that might apply to your match. It’s possible that if you leave your company before a certain time period, you’ll lose access to these matching funds. Ask your human resources department for details.
2. Bump up your contributions
Many employers automatically enroll new hires into retirement plans, and auto-select a contribution amount, often 3%. One of the best things you can do to improve your retirement planning and take advantage of your 401(k) is to boost the amount of money you set aside from each paycheck.
Per step one, you’ll want to bump up to ensure you take full advantage of any employer match. However, you may want to go even further, saving 10-15% of your salary. You could go a step further and see how much you’d need to set aside to “max out” your contributions in a given year. In 2024, the maximum amount you can contribute to a pretax IRA is $23,000 or $30,500 if you’re 50 or older. (Check with the IRS to see the most up-to-date contribution limits.)
3. Know your investments
Employer-sponsored plans have different investment options determined by the plan sponsor. Sometimes, the funds you contribute are automatically enrolled in preselected funds. Other employer-sponsored plans require you to select how your funds will be invested.
Take a moment to review the investment options in your 401(k), paying attention to fees, and choose which investments make the most sense for you.
4. Rebalance periodically
Once you select where you want your contributions to go and set up automatic deductions from your paycheck, you may not think about your retirement plan again. However, set aside time to review your plan and see if you need to rebalance your portfolio or update how you’re handling your investments. Remember: The way your investments are allocated can drift over time due to market performance.
For most employees, doing this once a year should suffice. Or see if your plan offers an automatic rebalance option.
5. Don’t stop with a workplace plan
Employer-sponsored retirement plans work best as part of a comprehensive financial plan. For example, you may want to combine this type of pretax retirement plan with a Roth account to try and minimize your tax burden in retirement. You may also want to choose which investments to include in your 401(k) based on the investments included in other areas of your portfolio.
A Bogart Wealth Financial Advisor can review your employer-sponsored retirement plan alongside the rest of your investments as part of a comprehensive strategy. If you have questions about saving for retirement, contact a Bogart Wealth Advisor today.
