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Save All You Can

Make sure you are getting the most out of your 401(k) plan

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    Your Retirement Confidence

    En español | If you’re feeling insecure about how you’ll support yourself in retirement, you’ve got company. Just 2 in 10 American workers say they are “very confident” about their retirement security. Yet the Employee Benefit Research Institute estimates that more than 8 in 10 workers who are at least 45 years old are on pace to have at least 80 percent of what they need to meet their basic needs in retirement. Put another way, chances are the gap between what you’re on track to have and what you likely need to meet your basic expenses in retirement may be no more than 20 percent. You can close that gap with some strategic tweaks to your retirement plan.

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    Run the Numbers

    Research shows that people who use an online calculator to size up their retirement needs are more confident than folks who wing it. Yet just half of folks in their mid-40s or older have tried to calculate how much they will need for retirement. “Running the numbers gives you a concrete goal that you can focus on, and your 401(k) becomes the vehicle that helps to get you to your goal,” says Ron Rogé, a certified financial planner and founder of wealth management firm R.W. Rogé & Co.

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    Get the Full Employer Match

    If your employer ponies up a matching contribution, double-check that you are contributing enough to qualify for the maximum match. This is especially important if you have changed jobs in the past few years and were automatically enrolled in your new employer’s 401(k). Many employers set the initial contribution rate for workers who are automatically enrolled at too low a level to qualify for the maximum match.

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    Amp Up Your Savings Rate

    In 2014 anyone at least 50 years old can contribute up to $23,000 to a 401(k). Even if that is way more than you could feasibly save, make it your goal to save more this year and even more next year. Consider increasing your savings rate at least 1 percentage point a year. And when you get a raise, consider earmarking at least half of it for your 401(k). 

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    Be a Fee Fiend

    All funds in a 401(k) charge an annual fee, called the expense ratio. The average annual expense ratio for 401(k) funds is 0.58 percent. You should be able to find the annual expense ratio for every fund by logging on to your account online. A free service at FutureAdvisor. If you find the funds you’re invested in charge high fees, check to see if there is at least one index fund offered, because they tend to have lower fees. According to BrightScope, a website which tracks 401(k) plans, 70 to 80 percent of plans offer an index fund.

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    Be Smart About a Rollover

    If you have old 401(k)s left behind at past jobs, check the fees on those accounts as well. You can move that money to a retirement account at a discount brokerage or fund company and have the freedom to invest in low-cost funds and exchange traded funds (ETFs). This move is called an IRA rollover. The company you are moving your account to will help you handle the paperwork (it’s time-consuming, but it’s not complicated). Just make sure you’re authorizing a “direct rollover.” That ensures you will not trigger any tax bill at the time you move the money.

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    Don’t Raid Your Nest Egg

    Keep your money growing. Many 401(k) plans allow participants to take a loan from their account. Rogé recommends you resist the temptation: “A loan from your retirement account is mortgaging your future.”    

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