You Should Basically Never Check Your 401(k) Statement

Make a few simple decisions, then leave it alone.
Tom Merton via Getty Images

Understandably, most people really don’t like looking at their financial statements.

Who wants to log in to their bank’s website and be forced to look at a terribly formatted list of all the things they didn’t want to spend money on but had to -- while imagining the longer list of things they want to spend money on but can’t? Of course, you should still do this pretty regularly.

Here's the good news: There’s one financial statement you should almost never look at. It’s your 401(k).

That’s right, those personal finance experts who tell you to do all sorts of anxiety-inducing things actually agree that it's silly to look at your 401(k) statement more than once a year or so.

After all, what’s the point? You look at your bank statement to make better decisions about how to spend your money. But once you understand the basics of your 401(k) and set it up, they only decisions left to make are ones that will hurt you in the long run.

Instead, the best thing to do with your 401(k) is set it and forget it. Here are the terms you need to know to make that possible.

Let’s start with what, exactly, a 401(k) is. It’s just a retirement account that some companies give to their employees. (Not all workers have them, which is a huge problem, but you should use yours if you do.) Like many confusing things, it is named after a section of the tax code. That’s because money you put into it isn’t subject to taxes until you take it out. Fewer taxes now, more money for retirement later -- that’s the core of why 401(k)s are good for you.

To get the benefit of saving money and paying less in taxes, you need to contribute to your 401(k). The company that runs your employer's 401(k) will ask what you want to set as your contribution amount. This is how much of your paycheck -- measured as a percent -- will be withdrawn each time you get paid. How much you contribute is totally up to you, but saving more is generally better than saving less. You can contribute a certain amount of money per year without being taxed -- the contribution limit this year is $18,000. Many plans allow you to do something called automatic escalation, which means how much you contribute increases by a set amount every year so that you save more as you get older.

You may get something called a company match. This is also a percent, and it indicates how much your employer is willing to contribute to your savings: For example, if your company offers a 3 percent match, that means it'll contribute 3 percent of your annual salary to your 401(k) if you do, too. This is basically free money. If you don’t set your contribution to get every dollar your company is willing to give you, you should have a really good reason.

So what should you invest in? Well, definitely not some random biotech stock your uncle told you he heard about from some guy on the golf course. You want to invest in really boring stuff: index funds or target date funds. Index funds track the market and have very, very low fees. Fees take money from your future self, so why pay them when you don’t have to? Determining how much money to put where (into stocks, bonds, etc.) is a perennial struggle, and target date funds answer it for you by moving things into safer investments as you get older.

Once you've set up your super boring investments, you’re done. Maybe look at your 401(k) around tax time to remind yourself that you made a good decision. If you can, it's not a bad idea to increase how much you contribute.

But generally, ignore the urge to check your 401(k) statement. As they say, lie down until the urge passes.

After all, you only have bad decisions to avoid.

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