Even with the best of intentions to make 2019 a better year for saving for retirement, the year may have gotten away from you—well, you’re not the only one. However, retirement plans and 401(k)s can always need more attention and care. Consider your 401(k) like a car that needs regular maintenance to provide the best performance and extend its years of service, says NewsMax Finance in the article “5 Easy Ways to Fix Your 401(k) Before It’s Too Late.”
Let’s look at those five ways, and see if you can do a better job in the coming year:
Rebalance routinely. Like any other investments, over time your retirement account will likely get unbalanced, since certain areas of your portfolio will outperform the market and others will underperform. If you work with a financial advisor, schedule meetings more than once a year to keep your portfolio on track.
Boost contributions. If you’ve been setting aside 5% of your income to your 401(k), try increasing that by 1% every month, or every quarter. See if you can live with less income. Over time, those increases will add up to a healthier nest egg. In 2020, the maximum 401(k) contribution for employees will be $19,500. Set a goal and commit to achieving it.
Don’t touch! A 401(k) or IRA is a long-term retirement account, not an emergency fund. If you withdraw funds before turning 59½, you’ll have to pay ordinary income tax plus a 10% early withdrawal penalty. That’s too costly, and will undermine your future.
Stay in for the long game. When the market gets soft or tumbles, don’t panic. If you sell out when the market takes a dip, it will take years until you can recoup the losses. Fidelity says that if you missed just the top ten days in the 23 years between 1980 and 2018, an initial investment of $10,000 would be worth $341,520 less.
Gradually reduce risks as retirement comes closer. Review 401(k) allocations and make sure the right proportion is in more conservative investments, like bonds and money market funds, as you get closer to leaving work permanently. In today’s low interest environment, you ‘ll still need some equities in your retirement accounts, but make sure you can sleep at night.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).
Reference: NewsMax Finance (November 26, 2019) “5 Easy Ways to Fix Your 401(k) Before It’s Too Late”