Is Your 401(k) Saving Strategy on the Right Track?

January 23, 2018

Worried that your retirement savings plan is off track? If so, you have company. A 2017 survey from Gallup found that more than 50 percent of Americans are worried about their ability to afford retirement.1

If you’re like many Americans, your 401(k) is your largest retirement asset. A 401(k) can be a powerful retirement savings vehicle. It offers tax-deferred growth, which means you don’t pay taxes on gains as long as the funds stay in the account.

Also, your employer may offer matching contributions to the plan. This means the company matches your contributions dollar-for-dollar up to a certain threshold, such as 3 percent of salary. Those matching dollars can significantly increase your savings rate.

Since your 401(k) is such a vital part of your retirement plan, it’s important that you monitor the account regularly. Unfortunately, it’s easy to forget about your plan, since it largely operates on autopilot. Without regular management and review, however, it’s possible that it may no longer be aligned with your needs and goals.

Below are a few quick tips to help you take control of your 401(k) and maximize your savings. If it’s been too long since you last reviewed your plan, make 2018 the year you do so.

Consider gradually increasing your contributions.

Tax deferral is a powerful tool. However, the only way to maximize the power of tax deferral is to contribute as much money as possible. The more dollars you have inside your 401(k), the more assets you will have growing on a tax-deferred basis.

Of course, you may find it difficult to significantly increase your contribution rate. After all, you depend on your salary to pay bills and support your lifestyle. You can’t suddenly increase your contribution to the maximum amount.

An alternative strategy is to gradually increase your rate over time. Make the commitment to raise your contribution by 1 percentage point each year. Over time, your contributions and your balance will steadily rise. Since you do it gradually, you shouldn’t feel the pain in your budget.

Review your risk tolerance and allocation.

At some point, you chose an allocation for your 401(k) contributions. If you’re like many workers, you chose that allocation when you first enrolled in the plan. That could have been years ago. In fact, it’s possible that your situation and needs have changed. It’s also possible that your tolerance for risk has changed over time.

Take time to review your current allocation and determine whether it’s still appropriate for your goals and risk tolerance. Your plan may offer an online tool to help you with this process. Or you may want to meet with a financial professional who can review your portfolio and recommend the appropriate allocation.

Make sure your beneficiaries are correct.

Your 401(k) is primarily a retirement vehicle. If you should pass away, however, it could serve as an important source of financial stability for your loved ones. When you enrolled in the plan, you probably named one or more people as plan beneficiaries. Those are the individuals who will receive your balance if you pass away.

Your family life may have changed since you first enrolled in your plan. You may have gotten married or divorced. Perhaps you’ve had children. If so, you may want to review beneficiaries and see if they’re still appropriate. If they’re not, make changes so they more accurately reflect your needs.

Ready to implement your 401(k) savings strategy? Let’s talk about it. Contact us today at Grand Canyon Planning Associates. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.