3 401(K) Tips That Will Increase Your Account Balance
September 22, 2020
By Rahul Iyer
Consistently contributing to a 401(k) can put you in a much better financial position after retirement. While being happy after retirement includes much more than money, you will be better able to facilitate the things you love.
In this article, we will discuss three things that you can do to increase your 401(k) account balance.
Save More Than the Default Savings Rate
In many cases, when you are employed you will be automatically enrolled into a 401(k) plan if your employer offers it. Most organizations have a default savings rate for their employees. This is likely to be somewhere around 3% of your income. While this is a start, you will likely need to contribute more than this to secure the standard of living that you want after retirement. Financial planning studies recommended that you contribute from 15% to 20% of your gross income to a retirement plan such as a 401(k). Of course, this is subject to the contribution limit of a 401(k) plan. In 2020, the contribution limit for a 401(k) is $19,500. If you are 50 or older, you can contribute an additional $6,500. It’s simple. The more you consistently contribute to your 401(k) plan is the faster your account balance will grow.
Pay Attention to the Fees Involved in Investments
Each investment option that you will have access to via your 401(k) plan will have fees attached. If you are not mindful, these fees can really eat away at your retirement savings account balance. Considering this, it is important that you familiarize yourself with all the costs associated with your investments and choose those with the lowest cost. Of course, you will need to weigh the costs involved against the potential for capital gains. The bottom line is to ensure that you are not paying too much in fees in comparison to the gains you are getting with your investments. If the cost of the 401(k) plan that your employer has designed for you is way too high, it is time to speak to your human resource department. They should be able to assist you in finding a plan with favorable costs that are in line with your risk tolerance.
Make an Effort to Diversify Your Assets
The possibility always exists that your 401(k) plan can experience loss. In order to minimize this risk, establish a portfolio of different stocks and bonds that are in line with your risk tolerance. Another strategy is to rebalance your portfolio to your target allocation. It is prudent to shift your funds to a less volatile investment options such as mutual funds as you approach retirement. It is important to diversify but ensure that you do not develop a habit of making changes to your 401(k) investment strategy sporadically. Keep in mind that the fruits of a good investment strategy will not bear without sufficient time.
There are a number of ways that you can increase your account balance over time. The three tips shared here can make a big difference. Strongly consider each and do all that you can to achieve your desired retirement account balance.