For most folks, the retirement plan offered through their employer is their number one source of retirement savings. That being said, it isn’t uncommon for someone to ask us about strategies they can implement in order to enhance these savings. Below are 6 strategies that you can use to optimize the savings in your retirement plan.
- Know your matching options– Many work retirement plans offer a matching option. If your plan does, make sure you take full advantage! If you aren’t at least contributing the full amount that your employer will match, you are leaving a lot of money on the table. Even getting an extra 1% would make a significant difference in the long run.
- Don’t take loans from your plan– If your plan allows, and many do, you may take a loan from your account balance. You can borrow half of your account value or $50,000, whichever is less. I encourage my clients to avoid this option. Keeping those funds invested will allow your balance to continue with compounding, tax-deferred growth. When you borrow from a 401k/403b, you are also using after-tax dollars to pay it back. This means you won’t be lowering your taxable income like with normal contributions.
- Use the Catch-Up Provision– Most plans offer catch-up provisions for employees who are over age 50. In 2015, the annual salary deferral contribution limit is $18,000. If you are over 50, however, the limit jumps up to $24,000. This increased limit is a great opportunity for those nearing retirement to augment their account balances.
- Hire a Professional– Many plans now offer options for employees to work with a Financial Advisor to help them with their retirement investments. To learn more about how this works, click here. An advisor can help you build your portfolio, rebalance your investments over time, as well as help you to avoid common behavioral-investing mistakes. Also, an advisor can help you access thousands of investment options, rather than a select few chosen by the plan sponsor. Important asset classes are often unable to be accessed within these proprietary, limited lineups.
- Be aware of fees– Make sure you are aware of the fees charged not only by the plan itself but of the investments within the plan. It isn’t uncommon for these fees to total close to 3%. These fees impact the long-term performance of your investments. If your 403(b) is run by an insurance company, there is a good chance that you are investing in an annuity through your plan (did you realize that?). These annuities often have surrender charges, meaning if you wanted to move your money you’d get penalized (often up to 7%)! Doesn’t seem quite right, does it?
- Don’t wait– “I will start contributing to my plan when ______ happens.” Don’t fall into this trap! If you keep putting it off until down the road, life happens and you may never get in the game. Commit to contributing as much as you can as early as you can. It all adds up!