Retire Comfortably: 4 Tips to Manage Your 401(k)

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Since Jan. 1, 2011, more than 10,000 Baby Boomers have reached the age of 65 every day. That trend will continue until 2030. Of those who have already retired, 35 percent rely entirely on Social Security payments. Although the average balance of a 401(k) reached a record high of $101,650 at the end of 2013, it’s still lower than the $218,000 to $350,000 low-to-high benchmark range for a 35-year-old American (average age).

Face it, America: Sailing off into the sunset with a large enough retirement stash to live comfortably for the rest of your life isn’t easy. Here are four tips to help make managing your 401(k) easier so you can set sail sooner.

Take Advantage of Your Employer’s Willingness to Match Contributions

Many employers offer to match part of your contributions to your 401(k), so don’t overlook this option when investing in your retirement. The policies regarding 401(k) matching are confusing, so reach out to your human resources department to walk you through the terms and conditions. Some employers will match a fixed percentage of the dollar value of your contribution while others won’t match it until after you’ve contributed a fixed dollar amount. Also make sure you’re aware of how long you have to work with an employer before claiming the funds.

Most experts say that you should set aside about 15 percent of your pay, which includes the matching funds from your employer. The IRS rules state that the maximum contribution you can make in 2014 is $17,500. So, if your employer matches up to three percent of what you contribute, you need to pitch in another 12 percent. If your employer decides to match even more, you can contribute less. Either way, make sure you maximize your employer match.

Practice Self-Discipline and Don’t Touch Your 401(k) Before Retirement

It’s tempting to want to dip into your retirement savings if you want to take a vacation or buy that brand new HDTV. Not only will you have to pay extra fees and taxes for doing so, but you’ll lose coveted compound returns. Essentially, by scraping through the tough times and leaving your 401(k) alone, your gains can be reinvested and earn you more money than a smaller chunk of cash would. It’s easy to forget about it in the moment, but year after year of this results in tremendous monetary gains. Leave your 401(k) alone! It’ll pay off the in the long run.

Consider Paying High-Interest Debts Off With 401(k) Loans

OK, so this might sound financially irresponsible considering the previous point. But if you’re relatively young and overwhelmed with high interest credit card debt, it could be worth it to borrow from your 401(k) to pay off those balances first (and never accrue them again). Essentially, the loans come out of your funds, and you’re paying the interest back to yourself. Although, you should really only consider this course of action if you’re really fighting to stay afloat. Remember, in most cases, you have to pay the loan back within five years with one percent interest. Consider speaking with a finance or accredited taxation degree graduate in order to figure out the loan payment plan that’s right for you.

Remember to Roll Your Funds Over if Your Leave Your Job

In addition to paying attention to new information and commentary on the global market, remember to roll your funds over if you leave your job and get a new one. Sure, it’ll be tempting to ask your employer to cut you a check, but it’ll result in you paying a bundle in penalties and taxes. Although, in most cases, you can keep your old 401(k) alone until your former employer kicks you off the plan, it’s best to just handle the situation yourself by rolling the funds over a 401(k) at your new job (or an IRA, otherwise). Talk with your plan administrators for rollover rules.

About 70 percent of Americans will work in some capacity during their retirement. To avoid falling into this statistic, remain proactive when managing your 401(k) so you can live out your Golden Years with financial freedom.

What are your worries concerning the future of retirement? Leave a comment below and share your thoughts.


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July 30, 2014 Retire Comfortably: 4 Tips to Manage Your 401(k)